Cadbury shares rose almost 40% after it rejected a £10.2bn approach from Kraft Foods, sparking talk of a bidding war.

Kraft said that the purchase of the maker of Dairy Milk would protect jobs in the UK – including saving a factory earmarked for closure.

But Cadbury said the approach “fundamentally” undervalued the firm.

Analysts say Kraft may sweeten its offer. Others could enter the fray, with the prospect of Nestle and Hershey making a joint move being mooted.

“Our initial view is that this represents a competitively pitched offer, but something less than a knockout blow,” said Martin Deboo at Investec.

‘Strong brands’

Kraft said it wanted to create “a global powerhouse in snacks, confectionery and quick meals”.

As well as Dairy Milk, Cadbury also owns the Green & Black’s chocolate brand and Halls lozenges, Trident and Dentyne gum brands, and liquorice allsorts maker Bassett’s. It spun off its drinks division as a separate business last year.

It is seeing much of its growth in emerging markets such as India and Russia.

And Cadbury said its “strong brands, unique category and geographic scope” left it confident of its future as a standalone firm.

Distribution savings

Kraft’s brands include Kenco and Maxwell House coffee, Oreo biscuits, Jacobs, Terry’s Chocolate Orange and Toblerone as well as cheese products such as Philadelphia and Dairylea.

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The proposed deal would allow up to $625m a year to be saved in distribution, marketing and product development costs, Kraft said.

Cadbury’s brands were “highly complementary” to its portfolio, it added, saying that the UK firm “would benefit from Kraft Foods’ global scope and scale and array of proprietary technologies and processes”.

“As we have done, Cadbury has built wonderful brands by focusing on quality, innovation and marketing, but we believe the next stage in Cadbury’s development will be challenging, given the increased importance of scale in the industry,” said Kraft chairman Irene Rosenfeld.