It has been expected for some time now. U.K. business authorities told Kraft (KFT) some weeks ago that it would need to make an official bid for Cadbury (CBY) or make no bid at all. Cadbury has been clever about maneuvering itself into a position to either stay independent or fetch a high price from Kraft. It increased its guidance two weeks ago. Last week, Kraft's position to make the acquisition was hurt when it missed Wall Street revenue estimates.
None of that past is more than prologue now: Kraft made its much-anticipated official bid for Cadbury at a price of 717 pence a share or 9.8 billion pounds ($16.5 billion). Cadbury shares fell 1% to 750 pence just after the news was released. Shares had traded as high at 768 pence on hopes that Kraft would be more aggressive with its bid.
The war over Cadbury's value now begins in earnest. Kraft probably has a great deal of resolve, and probably would not have extended the offer if it did not have the support of its two large shareholders Warren Buffett and Nelson Peltz.
Cadbury, on the other hand, can certainly resist Kraft's offer at its current level -- and indeed, it will. Cadbury's board rejected the Kraft bid almost immediately today, saying it was worse than the previously rejected offer.
What will it take to get Cadbury to the bargaining table? Probably 800 pence a share, if not more. That would be a 12% premium above the current offer. Anything below that almost certainly means a drawn out fight.
Douglas A. McIntyre is an editor at 24/7 Wall St.