US food giant Kraft has made a £10.2 billion takeover offer for confectionery group Cadbury which it says would save the firm's doomed Keynsham plant.

But Cadbury says its rival's unsolicited cash-and-shares proposal sells the firm short.

Kraft admitted Cadbury had already rejected its initial advances but is now appealing directly to the chocolate firm's shareholders.

Kraft - the firm behind brands including Toblerone, Maxwell House, Oreos, Dairylea and Jacobs - said it was "committed to working toward a recommended transaction" and hopes to continue talks with the maker of Dairy Milk chocolate.

In a surprise statement to the London Stock Exchange this morning, the US company, said the deal would create a "global powerhouse" in snacks, confectionery and ready meals.

It said the deal would help protect jobs in Britain, including saving the Somerdale factory due to close with the loss of 500 jobs next year.

Kraft is offering 300p in cash and 0.2589 new Kraft shares for every Cadbury share. This values each Cadbury share at 745p, a premium of 31per cent over its closing share price of 568p on Friday.

In a statement today, Cadbury said its board had "reviewed the proposal with its advisers and rejected it."

It added: "The board is confident in Cadbury's stand alone strategy and growth prospects as a result of its strong brands, unique category and geographic scope and the

continued successful delivery of its Vision into Action plan. The board believes that the proposal fundamentally undervalues the group and its

prospects."

But shares in the Dairy Milk maker soared 41 per cent as investors relished the prospect of a higher bid from Kraft or even other suitors entering the fray.

Cadbury, founded by Quaker John Cadbury in 1824, has been touted as a takeover target since spinning off its US drinks business last year.

Analysts speculated that Kraft may be forced to up its offer to at least 800p - equivalent to £11 billion - to secure a Cadbury deal.

However, it could face competition from other global food rivals such as Hershey, Nestle and Mars, according to experts.

A takeover of Cadbury would be the biggest in the UK sweets sector since Nestle bought Rowntree in 1988.

Kraft said it was "eager to build upon Cadbury's iconic brands and strong British heritage" and estimates the deal could save at least $625m a year in distribution, marketing and product development costs.

Kraft chairman Irene Rosenfeld said: "This proposed combination is about growth. We are eager to build upon Cadbury's iconic brands and strong British heritage through increased investment and innovation. We have great respect and admiration for Cadbury, its employees, its leadership and its proud heritage."

In a letter to Cadbury's chairman Roger Carr, published this morning, she said: "We believe that Cadbury's prospects, ability to fully realise operational efficiencies and capacity to invest are necessarily constrained given its limited scale and scope relative to larger global competitors. We see few catalysts for sustained future value creation for Cadbury as a stand alone entity."

She says: "Our extensive combined global business network would create opportunities for talented Cadbury employees and managers across all areas of the combined enterprise. We would augment Kraft Foods' and Cadbury's world-class capabilities by employing a "best of both" focus, from sales and marketing to distribution and manufacturing. For example, we believe we would be in a position to continue to operate the Somerdale facility, which is currently planned to be closed, and invest in Bournville, thereby preserving UK manufacturing jobs."

Amoree Radford of the Save Cadbury’s campaign added: “This shows that what we argued about the profitability of the British chocolate-making was true and there was no excuse to close Somerdale.”

Today a Kraft spokesman said the firm could not say whether a takeover would safeguard every single job under threat at Keynsham.

"We are heavily constrained from a regulatory point of view as to what we can say," he said.

Wansdyke MP Dan Norris said he would be keeping a close eye on developments.

“News of the Kraft proposal is clearly a major development for local people and businesses affected by the Somerdale closure next year. This impacts not just on Keynsham and North East Somerset, but right across Bristol, Bath and the West Country as a whole.

“I have today spoken to senior representatives from both Kraft and Cadbury. Kraft clearly believe that the joining of these two great companies would make business sense. Cadbury are not impressed. Kraft, let's not forget, are making no firm promises, but they do believe it could be possible for them to keep Somerdale operational. This is of course is an argument that local people have been making to Cadbury all along. We know the Keynsham factory is profitable and has one of the most dedicated workforces anywhere in the Cadbury empire. However, Kraft make no guarantees and we know that around the world they too are closing some of their existing facilities. Kraft's proposal must be treated with caution even though their words appear to offer some very welcome hope.

“Any prospect of the historic Somerdale factory remaining open is of course a very welcome development for Cadbury staff, and for the Keynsham community as a whole. "But as Kraft themselves are admitting there is a very long way to go before it might become a reality. What Kraft have announced is not a formal offer, but a proposal. It may even be that in we will now see other proposals or offers coming from a range of companies who may have other plans which may still see Somerdale close. We must take care not to get ahead of ourselves at the prospect which is being reported, but local people whose future is tied up with the world famous Somerdale factory cannot help but hope.

"On behalf of all those I represent I will be keeping a very close eye on developments, and Kraft and Cadbury have agreed to keep me fully informed as things progress.”

His Tory rival for the new north east Somerset seat Jacob Rees-Mogg said: “As an investment professional, it seemed to me that the business case for closing Somerdale had never been properly worked out and the cost savings were phantasmagoric. That Kraft intends to keep it open vindicates this view. It shows capitalism at its best. Hostile takeovers are a warning against management complacency.”