ZURICH — Food giant Nestle took a big slice of the giant pizza market in North America on Tuesday, announcing the purchase of Kraft Foods' pizza business for 3.7 billion dollars (2.5 billion euros).

But Nestle, cash rich and takeover hungry, revealed also that it was shunning the British Cadbury confectionary chain.

Instead, it was Kraft that said it would use the entire proceeds from the deal with Nestle to modify a bid for Cadbury, in a big re-slicing of the food retail sector financed in part by assets in the health business of eye care.

The statement by Nestle was seen as quashing rumours that the group, which said a day ago that it would bank 40 billion dollars for selling its stakes in eyecare giant Alcon to Novartis, would use its treasure chest to bid for Cadbury, famous for milk chocolate bars.

Cadbury meanwhile, which had rejected Kraft's earlier bid, quickly said in reaction that the hostile offer from Kraft remained the same.

"Kraft has once again missed the point. Despite this tinkering, the Kraft offer remains unchanged and derisory with less than half the consideration in cash," said a Cadbury spokesman.

Under the new offer, Kraft has offered Cadbury shareholders an additional partial cash alternative of 60 pence per Cadbury share, in place of some of the new Kraft Foods shares that they would have otherwise received.

The original cash and shares offer by Kraft included 300 pence in cash and 0.2589 new Kraft Foods shares, valuing Cadbury at about 10.2 billion pounds initially.

However, the value has since fallen to around 9.9 billion pounds (11 billion euros, 16.1 billion dollars) amid a drop in Kraft's share price and the weakening US dollar.

Explaining its revised offer, Kraft said it was a response to "the desire expressed by some Cadbury security holders to have a greater proportion of the offer in cash and because Kraft Foods shareholders have expressed a desire for Kraft Foods to be more sparing in its use of undervalued Kraft Foods shares as currency for the offer."

The US group said it believed its share price has been depressed due to short term factors which would dissipate once the uncertainty surrounding its offer for Cadbury is resolved.

Meanwhile, Nestle's move to renounce bidding for Cadbury means that it would have "enough firepower to do further acquisitions," said Bank Vontobel analyst Claudia Lenz.

Buying Kraft's frozen pizza business would meanwhile boost the group's frozen food business in North America, Lenz said, making a point also raised by Nestle chief Paul Bulcke.

"This frozen pizza business greatly enhances Nestle's frozen food activities in North America, bringing together a selection of great US and Canadian brands, industry-leading R&D and excellent route-to-market capabilities, which complement our existing ice cream direct-store-delivery," said Bulcke.

"With total sales of around 3 billion (Swiss francs), Nestle will become the world leader in the attractive, fast-growing frozen pizza category," he added.

The United States is the biggest pizza market in the world with consumer sales of about 37 billion dollars, said Nestle in a statement.

With estimated sales of 2.1 billion dollars in 2009, Kraft Foods was the leader in the frozen pizza category and had enjoyed double-digit growth in the US and Canada over the last four years, it added.

Brands owned by Kraft include DiGiorno, Tombstone and California Pizza Kitchen.

Analysts from Bank Wegelin viewed the purchase as a positive move for Nestle.

"This pizza deal would not kill investors' appetite, as the frozen food sector is taking on an immensely important role in today's society," it said.