The takeover battle for U.K. confectioner Cadbury PLC (CBY) officially got underway Wednesday when the U.K. Takeover Panel gave U.S. suitor Kraft Foods Inc. (KFT) six weeks to make a formal offer or to walk away.

THE RULING:

The U.K. takeover regulator, responding to a request from Cadbury, has told Kraft it must submit a formal offer either to the Cadbury board or directly to Cadbury's shareholders by 1700 GMT on Nov. 9 or abandon its bid to buy Cadbury for at least six months.

WHAT HAPPENS NEXT:

Kraft, based in Northfield, Ill., is likely to make a formal offer, but could wait for some time before acting. As the process drags out, more of Cadbury's shares are likely to fall into the hands of short-term investors, hoping to make a quick profit by buying now in the expectation of a bid materializing. These shareholders are unlikely to turn down any offer so long as it's above the price they paid for their shares, and this works in Kraft's favor.

Once Kraft makes a formal offer, the Takeover Panel's deadline ceases to be relevant.

If the U.S. group fails to make a formal offer by the Panel's deadline, it wouldn't be able to submit a new bid under U.K. takeover rules for another six months.

THE CURRENT SITUATION:

So far, Cadbury has only received an informal approach from Kraft - which the British company immediately rejected. It believes the GBP10.2 billion approach undervalues Cadbury and it could offer its shareholders more value by pursuing its standalone strategy of organic growth and expansion abroad. It has accused Kraft of being a "low growth conglomerate" that contrasts with its own strategy of being a pure play confectionary company.

Kraft's rationale for acquiring Cadbury is that it would give the combined company better scale to compete with global confectionary competitors like Mars Inc. and Nestle SA (NESN.VX). A deal would help Kraft boost sales by better tapping the rapidly expanding populations in developing countries.

Kraft has so far said it was working towards getting a recommendation from Cadbury for a bid. It offered 745 pence in cash and shares in its initial approach.

For the U.S. giant to make a formal bid, it will need to have all of its financing in place. Analysts believe it will also have to offer significantly more than the 745 pence in cash and shares it indicated three weeks ago.

OTHER CONSIDERATIONS:

Kraft's interest in Cadbury could flush out rival bids. Analysts think Nestle and Hershey Co. (HSY) of the U.S. are the most likely to be interested.

Nestle Chief Executive Paul Bulcke has said that the Swiss company is always "open to acquisition opportunities if they fit strategically," but that its appetite is limited.

For Hershey, Cadbury offers the kind of global reach the Pennsylvania company needs to remain competitive. A person familiar with Hershey's thinking told Dow Jones Newswires earlier this month that the company "is likely to make some response," although other reports have since said such a move is unlikely.

WHAT THEY SAID:

"We have made our position on Kraft's proposal very clear and we welcome the Panel's decision today in the interests of obtaining clarity and certainty for our shareholders and employees at the earliest opportunity." - Cadbury Chairman Roger Carr

"It wouldn't surprise if Kraft used the whole six weeks. They'll want to see if there are any counterbids." - Shore Capital analyst Darren Shirley.

"We've noted the decision and understand the implications." - Kraft spokeswoman Lisa Gibbons.

-By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; michael.carolan@dowjones.com