Paris, Sept 7 - Shares of European food groups surged on Monday after Kraft made a $16.7 billion bid for Cadbury, spurring consolidation hopes in a sector shunned by investors during the market's six-month rally.
Cadbury, the world's second biggest confectionery group, rejected the offer, but Kraft said it still hopes it can clinch a deal.
Shares in Cadbury shot up more than 40 percent to 802 pence by 1050 GMT, hitting their highest level since June 2007 during morning trading and settling well above Kraft's offer price. After about 3 hours of trading, the volume on the shares was nearly 7 times the stock's 90-day daily average.
Shares in Unilever, the world's third-biggest food and consumer goods group, gained 3.2 percent, French food group Danone climbed 5 percent and Swiss chocolate maker Lindt rose 2.2 percent.
Nestle, which analysts believe might be drawn in to a counterbid for Cadbury -- possibly as part of a joint offer -- was up 1.2 percent.
"This offer is likely to fuel speculation on the sector. A counter-offer from Nestle would not be surprising as the group has financial means to do it," one Paris-based trader says.
Nestle declined comment on whether it might bid, but said it planned no big acquisitions in 2009 or 2010.
Kraft shares traded in Frankfurt were down 1.8 percent. U.S. markets were closed on Monday for a holiday.
Based on Kraft's closing New York share price of $28.10 on Sept. 4 and a sterling exchange rate of $1.6346, the firm's offer values each Cadbury share at 745 pence.
M&A BUZZ BUOYS BROAD MARKET
Europe's DJ STOXX food and beverage index .SX3P surged 3.2 percent -- by far the top gainer among sectors in Europe on Monday -- and outpacing a 1.3 percent gain in the benchmark FTSEurofirst 300 .FTEU3 index, which was itself buoyed by the revival of the mergers and acquisitions buzz.
"This is exactly what the market needs," said David Thebault, head of quantitative sales trading, at Global Equities.
"A second wind to drive stocks higher after the 50 percent relief rally, and above all, something that will put the macro stuff on the back seat," he said.
"The credit market is in a better shape now, while equities are still cheap compared to historical levels. So the strongest companies, and the bankers, are starting to look around for acquisition ideas."
Food stocks have underperformed the market during the rally that began in March, during which investors have generally shunned defensive stocks in favour of beaten-down financials and cyclicals.
Before Kraft unveiled its offer, Cadbury shares were down 6.2 percent over 2009, with the stock closing at 568 pence on Friday.
The food and beverage index is now up 15.6 percent so far this year, while the FTSEurofirst 300 is up 17.2 percent over the same period. The basic resources index .SXPP -- Europe's strongest sector in 2009 -- is up 62 percent and the banking index .SX7P is up 54 percent.
At the close on Friday, food and beverage stocks traded at an average 12.05 times earnings, while the average price to earnings ratio for the FTSEurofirst 300 was 12.96.
The sector's average price-to-book ratio was 2.68 on Friday.