* Put up or shut up deadline likely soon
* Options for Kraft: raise bid, walk away, go hostile
* Analysts say going hostile soon is unlikely
By Rhys Jones and Victoria Howley
LONDON, Sep 28 (Reuters) - The UK Takeover Panel is widely expected this week to set Kraft a deadline by which it must put a firm offer on the table for UK rival Cadbury or walk away for six months.
It is now three weeks since Cadbury, the world's second largest confectionery group, rejected a 745 pence a share or 10.2 billion pound ($16.7 billion) approach by Kraft, North America's biggest food group.
"The indications are that the UK Takeover Panel will impose a 'put up or shut up' deadline giving Kraft four to six weeks to make an offer," said Shore Capital analyst Clive Black.
Bankers and analysts say that it still early days in the battle, casting doubt on a report in Britain's Observer newspaper that a hostile bid was imminent. Many feel Kraft will try and avoid going hostile given the complexity of any tie-up.
Here are the various ways the deal could unfold:
KRAFT RAISES OFFER
Kraft's only move so far is an informal approach, which Cadbury rejected as too low. Bankers say Kraft's dilemma is where to pitch a formal bid in the hope that it can win a recommendation from Cadbury's board and gain access to the company's books.
Credit Suisse estimates that the current 745 pence a share proposal is worth about 12.5 times 2009 EBITDA but analysts believe an offer of closer to 14 times 2009 EBITDA -- or about 850 pence per share -- could lead to an agreed deal.
"Based on the average valuation for previous deals, Kraft's debt capacity and the potential for upgraded synergies, we see an 850 pence offer fully valuing Cadbury. This would be 16.3 times 2008 EBITDA and 13.4 times expected 2009 EBITDA," said Orianna Segaud, an analyst at Natixis Securities.
A senior banker told Reuters 850 pence would "probably be enough for Cadbury to accept and give them a recommendation".
One analyst downplayed the likelihood of Kraft coming out with a "knock-out bid". He said the company is unlikely to "blow all its ammunition at the first go", adding that Kraft would likely come back with a second offer if its first attempt was rejected.
"If Kraft is knocked back the next offer would probably have a higher cash element but would not be a full cash bid," the analyst said.
KRAFT WALKS AWAY
Kraft is unlikely to walk away from Cadbury before making a formal bid because there are sound strategic reasons for the deal. For Kraft, the transaction is a natural extension of a product strategy to push into high growth and high margin areas.
"This is the start of a long campaign and the one thing we can rule out at this stage is Kraft walking away very soon," said the senior banker.
"There has to be a chance that Kraft walks away -- we don't think that chance is nil - but we would also suggest that it is part of current shareholders' thinking that if Kraft did walk away where would Cadbury shares go to and it would prob start with a 6," said Black. Cadbury shares, which were at 568 pence before the bid, ended Monday at just over 800 pence.
A COUNTER BIDDER COMES IN
Large Cadbury investors are worried Chief Executive Todd Stitzer may overplay his hand in fending off Kraft's offer, with no obvious rival in sight to spark a bidding war.
But Black expected Cadbury to be "courting counter bidders like mad" at the moment and sees the "often talked about combination of Nestle and Hershey Co" as the most likely source of that counter bid.
Analysts at Evolution believed a Hershey-Nestle bid could be a "possibility" and have also mentioned private equity group KKR as another source of interest.
But most were sceptical about a bidding war, and also believe Cadbury would struggle to find a white knight.
Natixis' Segaud didn't see Hershey and Nestle combining because the Hershey Foundation -- its majority shareholder -- would not want to see its stake diluted. For Nestle, competition issues in the chocolate market in the UK or Brazil would complicate matters.
KRAFT GOES HOSTILE
Britain's Observer newspaper on Sunday reported that Kraft was poised to launch an 11 billion pounds hostile bid for Cadbury.
Major UK-based Cadbury shareholders declined to comment on the deal. However, one top 25 investor, who declined to be named, told Reuters that Kraft had not contacted his firm about the reported hostile bid.
Another senior banker said it would be strange for Kraft to go hostile before they have their financing in place.
"Market speculation suggests Kraft are not yet there on the financing. They could argue with the Takeover Panel that they need a longer period in which to make a bid to get the financing in place," the banker said.
One analyst covering Cadbury said he thought Kraft would go hostile eventually but added that the best thing for them to do would be to wait and see some of the air come out of the Cadbury share price rather than go hostile right away.
"If they go hostile, it will be towards the end of the Takeover Panel timeframe. They would do this hoping that the Cadbury share price has come down and to trigger a 60-day offer period," said another analyst.
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(Additional reporting by Raji Menon; Editing by Sitaraman Shankar and Paul Hoskins)