Kraft front-runner as Nestle rejects move for Cadbury

US food firm Kraft revised its proposal adding 60p in cash per share to the offer, while reducing the stock portion of the hostile bid.

Kraft is selling its North American frozen pizza business to Nestle for 2.3bn in order to fund the revised proposal.

Meanwhile, Nestle confirmed it has no intention of making an offer for the UK firm.

Speculation surrounding Nestle's acquisition plans were fuelled on Monday when it raised more than 17bn from the sale of its 52 per cent stake in eye care group Alcon.

Cadbury renewed its rejection of the Kraft takeover bid, once again calling it "derisory".

In another twist to the saga, Kraft's biggest shareholder Warren Buffett warned the American food giant not to overpay for Cadbury.

Mr Buffett raised doubts about the success of Kraft's hostile bid. His Berkshire Hathaway investment company, which owns 9.4 per cent of Kraft, said it had voted 'no' to Kraft's proposal to issue up to 370 million new Kraft shares to help fund the Cadbury takeover.

Berkshire may change its vote if it decides that the offer does not destroy value for Kraft shareholders.

The highly influential Mr Buffett said Kraft's share issuance proposal gives it a blank cheque, allowing the group to change its offer for Cadbury.

Nestle, the world's biggest food group, said it did "not intend to make, or participate in, a formal offer" for the British confectioner, best known for Cadbury's Dairy Milk chocolate.

Analyst Jeremy Batstone-Carr at Charles Stanley said: "Nestle's decision effectively leaves Kraft as the overwhelming front-runner. Nestle's decision effectively removes Ferrero and Hershey from the field as competitive forces."

US-based Hershey and Italy's Ferrero expressed interest in bidding for Cadbury in November, but analysts had expected Nestle might team up with Hershey, while Ferrero was seen as needing financial help.

Analyst Martin Deboo at Investec Securities said Kraft had effectively bought Nestle's silence in the bid process while the likelihood of a competitive auction for Cadbury had fallen.

Analysts expect Kraft will need to pay 800p per share or above to win over Cadbury, and Mr Deboo sees Kraft's ultimate valuation of Cadbury at 820p.

Kraft said it will give further details of its alternative takeover proposal by January 19, the last day under takeover rules that it is allowed to amend its offer.

The US firm also said it had extended yesterday's deadline for Cadbury shareholders to accept its takeover offer to lunchtime on February 2.

Kraft's original offer was for 3 per Cadbury share plus 0.26 new Kraft shares.