As the UK woke up to the news at 7 am on Monday, 7 September that Cadbury had rejected a $16.7-billion takeover offer from US food and beverage giant Kraft (See: Cadbury rejects Kraft Foods' $16.7 billion merger offer), the acquisition offer has set other global confectionery makers, especially Hershey's and Nestle mulling a counterbid.

Although Kraft's chief executive Irene Rosenfeld, who ranks number six in the Forbes list of the World's 100 Most Powerful Women, had met Todd Stitzer, chief executive of Cadbury on 28 August and outlined the deal to him, which the Cadbury board rejected immediately, Kraft chose to go public only on 7 September to ramp up pressure on the UK confectioner and get the support of its shareholders.

But little did Kraft realise that by going public with the rejected offer, it would prompt other rivals to wake up to the competition in their backyards and consider a counterbid as Kraft put Cadbury into play in the market.

If Kraft succeeds in acquiring Cadbury, it will not only put US giant The Hershey Food Co in the fourth place in global candy business, but also open it to immense competition in the US, which accounts for 86 per cent of its revenue.

Hershey, the Pennsylvania, US-based confectioner, run by the tight knit Hershey Charitable Trust that controls 77 per cent of the company's voting stock and 31 per cent of common stock, is reported to have appointed JPMorgan Chase to advise it on its options as it considers a counterbid for Cadbury.

Hershey Foods, founded in 1894 by Milton Hershey is North America's leading manufacturer of chocolate and non-chocolate confectionary and chocolate-related grocery products. Some of its most well known chocolate brands include Hershey's Kiss, Kit Kat, and Reese's Peanut Butter Cups.

Hershey already has a tie-up with Cadbury since 1980 to market the London-based confectioner's candy in the US market and a takeover of Cadbury's chocolate business would open the European and the vast emerging markets, where Cadbury's strength lies.

But the main dampener to an outright acquisition of Cadbury would be the $1.7-billion net debt in Hershey's books and with a market value of $8.9 billion, it would look as if it would be a least likely rival to acquire the much larger Cadbury, whose market value has soared to $17.7 billion after the news of Kraft's bid became public.

That probably leaves Hershey with no option but to get a partner on board such as the world's largest confectioner, Switzerland's Nestle, if the Hershey trust is willing to part with its independence.

Analysts say between the two, they could carve up Cadbury, where the Swiss group takes the gum business, while Hershey keeps the chocolates business, as such a deal would not raise anti-trust concerns.

A combined bid of $21 billion, a figure suggested by analysts, would sweeten the deal for Cadbury shareholders even though the deal would not bring in the $625 million in annual cost-savings that Kraft expects through the merger, since the international operations of Cadbury's chocolate business have no overlap with Hershey.

Most analysts feel that Cadbury's shares are worth between 850-900 pence, which values Cadbury at $21 billion.

A lot will depend on the Cadbury's American shareholders who form the bulk of the company's share register with a 40-per cent ownership, Cadbury's single largest shareholder, Legal & General Investment Management, which has a 5.4-per cent stake and Morgan Stanley Investment Management, which owns another 4.83 per cent.

But even as Hershey mulls a counterbid, Kraft is busy planning to take its bid hostile, for whoever acquires Cadbury would get hold of the emerging markets like India, Mexico, Egypt, Thailand and other British Commonwealth countries where it has had a strong foothold for over 60 years.

In India, Cadbury has 70 per cent of the Indian chocolate market and 30 per cent of the broader confectionery market, with sales of $500 million annually and growing at 15 per cent every year.

Though Kraft's Rosenfeld had said that the company wants to remain a "disciplined" buyer in its Cadbury bid and plans to keep its investment-grade credit rating.

It is said to be arranging a bridge loan of around $8 billion from several lending banks, including Deutsche Bank and Citigroup, which can be repaid with the proceeds of a subsequent bond issue.

Notwithstanding this statement, Kraft knows that it would have toraise its bid if it seriously wants to keep other bidders out. As Michael Osanloo, Kraft's executive vice-president of strategy, said in a statement yesterday, "The simple fact is that Cadbury is worth what someone is willing to pay for it - nothing more."

The very fact that Kraft is seeking funds from banks, makes analysts feel that the company is willing to boost the cash component of its offer.

Rosenfeld also said that she did not expect Kraft to divest any of its brands to help fund the takeover. Instaed, it is now focusing on cost-cutting initiatives. Kraft said it plans to reduce the number of suppliers by half, and cut costs by $300 million a year by consolidating purchases of materials from packaging to food ingredients.

Although Cadbury is carrying a debt of $2 billion as of December 2008, some analyst say that they would not be surprised if Cadbury launches a bid for Hershey in order to avoid being taken over by Kraft.