John Paulson, the US hedge fund manager who earned billions with savvy bets on the collapse of the US sub-prime mortgage market, doubled his stake in Cadbury on the same day the confectioner rejected a takeover bid from Kraft, the US food group.

A regulatory filing released yesterday shows that Mr Paulson’s New York-based hedge fund, Paulson & Co, now owns 28.5 million shares, or 2.08 per cent, of Cadbury after it bought 14.8 million shares for 759.59p each. That implies a price of £112 million for the purchase. The filing did not say when he bought his previous holding. Paulson & Co was unavailable for comment.

Mr Paulson’s fund is not the only one to show an interest in Cadbury after Kraft’s bid. Eton Park Capital continued buying Cadbury shares in September at levels above 800p, and now holds 2.4 per cent.

Franklin Resources, which has become the largest Cadbury shareholder since Kraft disclosed its approach, continued to build its stake at levels above 790p. It now holds 8.12 per cent.

Kraft’s formal bid for Cadbury on Monday offered the same mix of cash and stock as its original unsolicited approach in September, disappointing investors, who hoped for an increased offer. Cadbury described the Kraft proposal as “derisory”.

Originally worth 745p a share, the bid has fallen to about 717p, or £10.2 billion, as Kraft’s shares have declined.

Cadbury’s shares, which closed at 763p last night, had traded above 800p at the beginning of October amid speculation that Kraft would make a higher formal bid or counter-bidders would be drawn into a takeover battle.

Kraft’s offer direct to shareholders has set the stage for a bitter fight that could last months.

Martin Deboo, an analyst at Investec Securities in London, said that Kraft was likely to be planning a “long and patient siege” and would raise its bid eventually.

Kevin Dreyer, who helps to manage stock including Cadbury shares at Gamco Investors in Rye, New York, told Bloomberg that the deal was “going to rumble on and get played out in stages”.

The uncertainty surrounding the bid has prompted Moody’s, the ratings agency, to consider cutting its rating on Cadbury. It said that it will also consider the position of Cadbury and its bondholders within the legal structure of the new group and any protection offered to Cadbury bondholders in the form of guarantees.

Kraft’s rating has been under review for possible downgrade since September 8, partly reflecting the increased financial leverage that could result from the Cadbury transaction.

In 2007, Mr Paulson was the hedge fund industry’s highest-paid manager, with earnings of more than $3 billion.

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