Kraft starts clock on unchanged Cadbury bid

LONDON/CHICAGO (Reuters) - Kraft Foods posted its offer to CADBURY (CBRY.LO) shareholders with terms unchanged on Friday, triggering a two-month takeover fight for the chocolate maker and a frosty response from Britain.

As the battle got under way in earnest, a source close to the company said Kraft's offer remained derisory and UK business secretary Peter Mandelson warned the US food giant it would face a backlash if it tried to buy Cadbury on the cheap.

"If you think that you can come here and make a fast buck you will find that you face huge opposition from the local population ... and from the British government," he was quoted as saying in a report on the Financial Times website.

A spokesman for Mandelson could not immediately confirm the comments.

Kraft's formal bid matches its indicative 10.1 billion pound ($16.8 billion) bid, offering 300 pence in cash and 0.2589 new Kraft shares for each Cadbury share, which the U.S. food giant said valued Cadbury shares at 713 pence. At 11:24 a.m. EST (1624 GMT), Cadbury shares was trading down 0.7 percent at 794.5p.

Many analysts expect Kraft to have to pay 800p or above to win over Cadbury shareholders, in view of the UK firm's upbeat third-quarter trading and the chance of a rival bidder.

"To ward off other rival bidders and to appease Cadbury shareholders, they are most likely going to improve the offer, whether it means improving the price or the cash level of the offer," said Morningstar analyst Erin Swanson.

METHODICAL APPROACH

But others acknowledge the slow, methodical approach to the bidding process that Kraft CEO Irene Rosenfeld has taken, prompted by a determination not to overpay and her view a rival bidder is unlikely to emerge.

Cadbury declined to comment on the formal bid, but a source close to the company said: "The offer is unchanged and still derisory."

Under U.S. takeover rules, Cadbury cannot respond to Kraft's formal posting until it publishes its full defense document which is due in the next 14 days.

Cadbury has consistently rejected Kraft's bid, first disclosed three months ago, forcing Kraft to turn hostile in early November and go directly to Cadbury shareholders in its aim to create the world's largest confectionery group.

"We remain confident that the unique combination of Kraft Foods and Cadbury would create a significant growth opportunity for both businesses," Rosenfeld said after publication of the offer document.

"Our offer is fully financed (and), represents a substantial premium to Cadbury's unaffected share price."

Kraft shares edged up 0.6 percent to $26.59.

The document outlining the unchanged terms of Kraft's bid means that Friday is Day 1 of a 60-day timetable under UK takeover rules, giving the American giant until early February to convince Cadbury shareholders to accept its bid.

Cadbury has 14 days, or until Dec 17, to issue its defense document, while Kraft has until Day 46 to raise its bid.

RIVAL BIDDERS?

A rival could unveil its hand any time up to Day 60, which would reset the takeover timetable to zero.

Italy's Ferrero and U.S.-based Hershey Co have said separately they are considering making a bid. Analysts say the two firms may look at a joint bid, and have also cited Nestle as a possible partner in a Hershey bid.

Cadbury Chief Executive Todd Stitzer has signaled support for a possible tie-up with Hershey, saying the U.S. chocolate maker would make a better cultural fit than Kraft.

A Kraft takeover would put a British icon and corporate symbol of industry and philanthropy into U.S. hands.

It would create the world's biggest confectionery group ahead of privately owned Mars-Wrigley, bringing Cadbury Dairy Milk chocolate and Trident gum together with Kraft's Milka and Toblerone chocolate as well as its Velveeta cheese, Oreo cookies and Maxwell House coffee.

Cadbury is due to give a fourth-quarter trading update on December 15 and may combine this with its official defense document and give longer-term targets especially on margins.

It currently aims to grow annual underlying sales by 4 to 6 percent and achieve "good" mid-teen percentage operating margins by 2011.

(For a graphic showing Kraft and Cadbury comparison,click here: http://graphics.thomsonreuters.com/129/EZ_CKHN1209.gif)

(Reporting by David Jones; editing by John Stonestreet)