Kraft Foods has gone hostile in its bid to buy Cadbury but didn't sweeten its first bid, drawing an immediate rejection from the British candy maker in what is likely to be a lengthy takeover struggle.
Taking the same offer directly to Cadbury shareholders likely means that Kraft is betting no competing bids will emerge for the maker of Dairy Milk and Creme Eggs. The early gambit also leaves the company room to take the bid higher.
Kraft made the offer, worth about $16.4 billion, just hours before a Monday deadline imposed by Britain's takeover law that required the company to make a formal offer or back off for six months. Kraft now has 28 days to file a prospectus, which will then trigger more deadlines that could last months.
The maker of Oreo cookies, Oscar Mayer meats and Nabisco crackers maintained its offer of 300 pence in cash and 0.2589 new Kraft shares. But the deal's value fell from its original $16.7 billion because Kraft's shares have fallen since the first offer was announced in September.
Cadbury Chairman Roger Carr offered a blunt assessment of the bid: "Kraft's offer does not come remotely close to reflecting the true value of our company."
Now it's up to Cadbury's shareholders to decide.
Most likely, they'll hold out for a higher offer, analysts say. Kraft put a maximum value on the deal of $17 billion in regulatory filings Monday, though that could change.
"Kraft probably does need Cadbury more than Cadbury needs Kraft," wrote Jeremy Batstone-Carr, an analyst with Charles Stanley.
He said Kraft will need to offer up to 850 pence per share, or its equivalent including more cash. Kraft's offer is worth only 714 pence per share, based on its share price and exchange rates Monday afternoon.
Cadbury shares finished trading up 3 pence to 761 pence on the London Stock Exchange after falling earlier in the day. Kraft shares fell 25 cents to close at $26.53 on Monday.
Some had speculated that a bidding war could ensue when Kraft's initial offer was revealed in September, with a pairing of Hershey Co. and the world's biggest food maker, Nestle, as a possible contender. Dutch consumer goods group Unilever NV publicly ruled itself out last week.
"Kraft hopes the reality that a competitive bidder will not step forward and that this is the 'best deal in town' will convince Cadbury shareholders to vote in favor of this transaction," said Christopher Growe, an analyst with Stifel Nicolaus & Co.
A combination of the two would create a company with at least $50 billion in annual revenue. Kraft is the largest food company in the U.S. and No. 2 worldwide to Nestle, which would keep its No. 1 position even if Kraft adds Cadbury.
Kraft has said it's confident in its future, whether or not it includes Cadbury. Growe said the deal for Kraft would make strategic sense "as a way to quickly correct its European business."
Cadbury has stakes in emerging markets throughout the world where consumers are hungry for its products. Product makers of all types are looking to expand their footprint into growing markets like India and China as they deal with consumers in more developed parts of the world who are hard-hit by the recession.
Kraft has a new term loan of up to $9.1 billion to help pay for the acquisition. Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and HSBC Securities Inc. helped arrange the credit line, according to a regulatory filing.
Kraft has been in the midst of a three-year turnaround plan that is nearly complete. CEO Irene Rosenfeld took over the top job in 2006 and launched the plan, which aimed to revitalize sales of Kraft's brands and shed slow-growing divisions.
The company has been doing that, with sales faring well in the recession as more consumers eat staples like macaroni and cheese as they dine at home. It also streamlined its business by trimming its offerings and selling certain units, like its Post cereals unit, which was known for brands like Post Raisin Bran.
Besides opposition from the Cadbury board, Kraft faces a band of vocal supporters of the British company's long-held independence.
Felicity Loudon, the granddaughter of former Cadbury Brothers managing director Egbert Cadbury, has also been an outspoken critic of any deal. She said she was "particularly saddened by the possibility of one of the last remaining British icons disappearing into an American plastic cheese company."
AP Business Writer Jane Wardell contributed to this report from London.