London - British confectioner Cadbury has agreed to a takeover from US food giant Kraft worth £11.5bn, the pair said on Tuesday.
The new firm will provide large cost savings and create a global market leader in food and confectionery, with annual sales totalling more than $100m, they added.
"The board of Kraft Foods is pleased to announce the detailed terms of a recommended final offer for Cadbury and the board of Cadbury unanimously recommends Cadbury security holders to accept the terms," a statement said.
News of a friendly takeover marks the end of a bitter war of words over control of Cadbury, which began life as a small grocer's shop in Birmingham, central England, in 1824.
The takeover will end more than 180 years of history for the colourful maker of Dairy Milk chocolate bars and Trident chewing gum.
Kraft's previous cash-and-shares offer had valued the iconic British firm at about £10.5bn.
"Kraft Foods believes a combination with Cadbury will provide the potential for meaningful cost savings and revenue synergies from which Cadbury securityholders will benefit," the statement added.
"Kraft Foods believes a combination represents a strong and complementary strategic fit, creating a global confectionery leader with a portfolio of more than 40 confectionery brands each with annual sales in excess of $100m."
'Good value for shareholders'
Prior to Tuesday, Cadbury had repeatedly rejected the previous offer from Kraft, arguing that it was "derisory" and had undervalued the London-listed firm.
However, the chocolate firm welcomed news of the improved takeover bid on Tuesday.
"We believe the offer represents good value for Cadbury shareholders and are pleased with the commitment that Kraft Foods has made to our heritage, values and people throughout the world," said chairperson Roger Carr.
"We will now work with the Kraft Foods' management to ensure the continued success and growth of the business for the benefit of our customers, consumers and employees."
Cadbury, the world's second biggest confectionery company behind Mars, also produces chocolate bar brands Crunchie, Fudge, Flake and Wispa. It now employs 45 000 staff in 60 countries.
Dairy Milk is the most popular chocolate bar in Britain - and the company sells more than 250 million bars every year in 33 countries around the world.
Other top-selling brands include Cadbury Creme Eggs, Halls throat lozenges and Milk Tray chocolate boxes.
Kraft, the world's second biggest snacks group after Nestle, makes numerous well-known products including Dairylea cheese, Milka and Toblerone chocolate and Oreo cookies.
The US firm proposes to pay 500 pence in cash and 0.1874 new Kraft Foods shares per Cadbury share. That would value each Cadbury share at 840 pence or about £11.5bn.
2009 performance 'outstanding'
"In addition, Cadbury shareholders will be entitled to receive 10 pence per Cadbury share by way of a special dividend following the date on which the final offer becomes or is declared unconditional," the statement added.
"This recommended offer represents a compelling opportunity for Cadbury shareholders, providing both immediate value certainty and upside potential in the combined company," added Kraft boss Irene Rosenfeld on Tuesday.
"For Kraft Foods shareholders it transforms the portfolio, accelerates long-term growth and delivers highly attractive returns, while maintaining financial discipline."
The friendly takeover deal comes after months of hostility between the two groups.
Kraft had made a £10.2bn offer for Cadbury back in September 2009.
However, Cadbury, led by American chief executive Todd Stitzer, rejected the bid, saying that it "fundamentally undervalued" the group.
Cadbury insisted recently that its 2009 performance was "outstanding" - a claim which was dismissed by Kraft as "underwhelming."
But the US firm has subsequently improved the offer after selling its North American pizza division to Swiss rival Nestle for $3.7bn.
The Kraft tie-up also faced opposition in Britain with protest from senior ministers over the attempt by a huge American firm to take over a homegrown company.
There have also been fears about British job losses, with trade union Unite warning Kraft would be saddled with huge debts leading them to axe 7 000 posts at Cadbury and 20 000 at the company's sub-contractors.
Meanwhile, US chocolate maker Hershey had also been considering a counter-offer for Cadbury, the Wall Street Journal reported last week, adding that it planned to bid at least $17.9bn.