Kraft faces tougher Cadbury pitch

HOW MUCH SWEETER?

Pablo Zuanic at broker JPMorgan said Kraft's results were likely to cap any eventual improvement in its offer.

"Re: the Kraft bid, we now assume a lower price on lack of competing bids, lower synergy assumptions and our growing belief Kraft could walk away ... We doubt Kraft will go over 780 pence," he added.

Investec Securities, meanwhile, said it expects Kraft would not be willing to pay more than 800 pence a share for Cadbury.

"We now think Kraft will be willing to pay only 800p, and the probability of a successful bid falls accordingly," said analyst Martin Deboo at Investec Securities, one of the few big brokers not involved in advising or financing in the bid battle.

Graham Jones at broker Panmure Gordon said Kraft would be able to raise the cash portion of its bid to 400 pence a Cadbury share from 300 pence after raising $9 billion of bridge finance, but its lower share price wouldn't help its cause.

Although Kraft beat earnings expectations, it reported weaker than expected third-quarter sales and cut its full-year 2009 sales growth forecast to about 2 percent, from 3 percent previously.

Panmure's Jones pointed out that Kraft disappointed on sales growth for the fourth quarter in a row, with underlying sales only up 0.5 percent compared with Cadbury's impressive 7 percent third-quarter growth, as reported last month.

Other analysts said this matched Cadbury Chairman Roger Carr's description of Kraft as a "low-growth conglomerate business model," in a September letter to Kraft Chief Executive Officer Irene Rosenfeld rejecting Kraft's bid.

Investec's Deboo said he rates Cadbury's chances of remaining independent as high as 40 percent and puts a stand-alone value on Cadbury's shares at 750 pence. Since its pre-bid level of 568 pence, a rise in the stock market and earnings updates would support this value, Deboo said.