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Kraft (NYSE:KFT)’ s hostile bid for Cadbury (NYSE:CBY) carries a value of $16.3 billion. Cadbury shares have recently traded above the level of the Kraft bid and the US company lost its chance to buy the UK firm because it did not raise its bid high enough.

Two things have happened in the last few days that make the Kraft bid academic. The first is that Hershey (NYSE:HSY) has almost certainly started friendly talks with Cadbury about buying all or part of its businesses.

The second, and perhaps more important news, is that Cadbury has raised its targets for the revenue and profit margins it expects to post over the next four years. “Kraft is trying to buy Cadbury on the cheap to provide much needed growth to their unattractive low-growth conglomerate business model,” said Chairman Roger Carr in a statement to shareholders today. Cadbury raised its revenue growth targets to 5% to 7% up from earlier targets of 4% to 6%.

The new financial targets make the claim that Kraft is simply buying Carbury to make up for its own lack of organic growth more plausible. Kraft’s last quarterly report showed a company that was struggling to increase sales. It did not indicate that its situation what likely to get better.

It is not clear what Kraft will do now that it has effectly lost its effort to buy Cadbury. Kraft will probably press on with its bid for another few weeks and retreat only when Cadbury has made a deal to sell itself or one of its strong divisions to another company.

Kraft has gotten bank financing totalling $9 billion for the Cadbury deal and it may choose to use those funds to launch the takeover of another company in its industry. Sara Lee (NYSE:SLE) is probably the most likely of these. It has already sold several divisions and is relatively small compared with many other multinationals in the processed food business. Sara Lee’s market cap is only $8.5 billion and its $12 billion in sales are mostly from processed foods and bake goods-a near-perfect fit for Kraft.

Kraft has money burning a hole in its pocket. It will buy a company other than Cadbury and it should become clear what its second choice is early in the New Year.

Douglas A. McIntyre