Nov. 8 (Bloomberg) -- Kraft Foods Inc., the world’s second- largest food maker, may have to increase its 9.8 billion-pound ($16 billion) bid for confectioner Cadbury Plc by tomorrow’s deadline to keep its takeover attempt alive, investors said.

Kraft proposed 300 pence in cash and 0.2589 new Kraft share per Cadbury share Aug. 28, an offer worth 717 pence based on Nov. 6 closing prices. Cadbury rejected that as an “unappealing prospect” from a “low-growth” conglomerate. U.K. regulators set a Nov. 9 deadline for Kraft to make a formal offer or walk away for six months.

“If they try anything less than 800 pence, people will yawn and say ‘go away,’” John Haynes, an equity strategist at Rensburg Sheppards Plc in London, which holds Cadbury shares, said in a telephone interview. “I’m surprised we haven’t seen any expressions of interests from anybody else, so I expect them to make a bid.”

The Northfield, Illinois-based maker of Ritz crackers and Oreo cookies has said it seeks to build on its position as a “global powerhouse” with combined annual revenue of about $50 billion. Cadbury, the maker of Creme Eggs and Trident gum, is the world’s second-largest candy and chocolate maker. Kraft is No. 4. Combined, they would overtake leader Mars Inc., based on data from researcher Euromonitor International.

Cadbury shares fell 4 pence to 758 pence Nov. 6 in London trading. Kraft declined 25 cents to $26.78 in New York Stock Exchange composite trading.

Representatives for Kraft and Cadbury declined to comment.

Developing Markets

Cadbury would give Kraft a sales channel in the U.K. and access to developing markets such as India. At the initially proposed price, the acquisition would be the biggest cross- border deal this year as companies revisit merger plans shelved during the credit crisis now that the recession has eased.

Investors including Franklin Resources Inc., the biggest investor in Cadbury, await Kraft’s next move. Anne Gudefin, a Franklin fund manager, said it targeted the U.K. confectioner as a takeover candidate before Kraft Foods’ unsolicited approach.

“We have an idea” of a bid price for Cadbury that would be acceptable, Gudefin said Nov. 5, with regard to her $15.1 billion Mutual Global Discovery Fund. That held 19.7 million Cadbury shares as of Sept. 30, according to Bloomberg data. She didn’t disclose the fund’s preferred price range.

“Cadbury is a company that nobody liked a year ago” when her fund bought “quite a lot” at around 525 pence and 550 pence per share, she said.

Franklin Resources’ funds in total hold more than 111 million Cadbury shares, according to a filing at the end of last week. Gudefin said she wasn’t speaking for the entire company.

‘Disciplined’ Pursuit

Kraft Chairman and Chief Executive Officer Irene Rosenfeld said the company will remain “disciplined” in its pursuit.

“With or without Cadbury, Kraft Foods is well- positioned,” she said Nov. 3.

Martin Deboo, an analyst at Investec Securities in London, cut his price target for Cadbury shares to 780 pence after Rosenfeld’s comments, saying he expects Kraft to offer 800 pence a share and the probability of a successful bid to “fall accordingly.”

Pablo Zuanic of JPMorgan Chase & Co. wrote Nov. 4 that he had a “growing belief” Kraft might walk away.

‘Pretty Full’ Offer

Warren Buffett, the billionaire whose Berkshire Hathaway Inc. is Kraft’s largest shareholder, has said the offer for Cadbury is “pretty full” as it stands, and that Kraft’s pursuit is a “tough game,” given its stock-price drop since the bid was announced.

“If I were Kraft, there’s nobody else competing, so why not offer what you originally offered,” said Donald Yacktman, founder of Yacktman Asset Management Co., which holds Kraft shares. “I hope they’re cautious and not overly aggressive.

“This is one of these deals that if they do get into a bidding war, the winner’s going to be the loser,” he said.

As of Sept. 18, Yacktman’s $962 million Yacktman Fund had gained 7.6 percent in the past five years, beating 97 percent of rivals, according to data compiled by Bloomberg.

Kraft’s cash-and-stock proposal was worth 745 pence when it was announced on Sept. 7, though the offer value fell below 706 pence four days later as Kraft’s shares declined.

Christopher Growe, an analyst with Stifel Nicolaus & Co. in St. Louis, expects the bid to be increased to 750 pence to 775 pence. Kraft probably would have to pay more than 800 pence per share to win approval from Cadbury’s shareholders and directors, he said.

“At below 850 pence per share, they have a good asset at a good price with some real growth ability,” Growe said in a Nov. 6 telephone interview. “Every penny over 850, I get less excited about it.” He recommends holding Kraft.

The Sunday Telegraph reported today that Cadbury Plc Chairman Roger Carr has met most of the company’s 50 largest shareholders to persuade them to back the confectioner’s defense against an increased Kraft bid. The Sunday Times said

To contact the reporters on this story: Duane D. Stanford in Atlanta at dstanford2@bloomberg.net;

Last Updated: November 8, 2009 15:01 EST