British candymaker Cadbury PLC rejected a renewed £9.8 billion (US$16.4 billion) hostile bid from Kraft Foods Inc on Monday after the American company refused to sweeten a previous offer.

Kraft's decision to keep the terms of its previously rebuffed cash-and-stock approach effectively means a lower offer for investors in London-based Cadbury because of a shift in the share prices of both companies.

The prospect of a tie-up has caused some consternation in Britain, where the 195-year-old Cadbury is a much-loved brand - its Dairy Milk is the country's top-selling chocolate bar.

Kraft, the maker of Oreo cookies, Nabisco crackers and its namesake cheese, argued that the proposed deal - though lower than the £10.2 billion offer on the table in September - "represents a substantial premium to the unaffected share price of Cadbury".

Analysts had said that Kraft, based in Northfield, Illinois, needed to improve that offer to have any chance of success in winning Cadbury, which also makes Green & Black's chocolate brand, Halls lozenges and Trident and Dentyne gums.

New Kraft shares

But Kraft instead retained its offer of 300 pence in cash and 0.2589 new Kraft shares.

While that translated to a deal worth 745 pence per Cadbury share in September, a surge in Cadbury's share price since then leaves the value of the deal now languishing at 717 pence.

Cadbury's shares were trading far above that level on Monday, up 0.3 per cent at 760 pence in afternoon trade.

The stock initially dropped as much as two per cent after Kraft's announcement, but soon began to inch up again, suggesting that the market believes that the US company's move is only an opening gambit.

Offer or walk away

Kraft, which also makes Kenco and Maxwell House coffee and Toblerone chocolate, made its move with just three hours to go before a so-called "put up or shut up" deadline under British takeover law that required Kraft to make a formal offer or walk away for six months.

"We believe that our proposal offers the best immediate and long-term value for Cadbury's shareholders and for the company itself compared with any other option currently available, including Cadbury remaining independent," said Kraft Foods Chief Executive Irene Rosenfeld.

But Cadbury Chairman Roger Carr said that the British company was "an exceptional stand-alone business" with "strong iconic brands, a sharp category focus and an enviable geographic scope."

"Kraft's offer does not come remotely close to reflecting the true value of our company," he said.

A combination of the two would create a company that generates at least US$50 billion in total revenue.

Kraft is the largest food company in the US and No. 2 worldwide to Nestlé, which would keep its No. 1 position even if Kraft adds Cadbury.

Despite speculation of a bidding war when Kraft's initial approach was revealed in September, rival interest from the likes of US candymaker Hershey Company has yet to emerge and consumer goods group Unilever NV publicly ruled itself out last week.

Billionaire Warren Buffett, whose investment firm Berkshire Hathaway is the biggest shareholder in Kraft, had said the previous Cadbury offer was "pretty full".