Pantaloon Retail alleges that Cadbury has discriminated against it by giving preferential prices and treatment to rival retailers including Germany’s Metro and Shoprite from the US.

Kishore Biyani, chief executive of Future Group, which owns Pantaloon, said: “We are taking their products out of the stores. We are not receiving the same treatment as others. They are giving better prices to other operators.”

A spokesman for Cadbury said: “As far as we are concerned, negotiations are still under way and we are still trying to find a mutually agreeable set of terms.”

The dispute, which will affect about 200 Pantaloon stores, threatens to harm Cadbury’s business in India, where it holds a 71pc share of the chocolate market and grew revenues more than 20pc last year.

It is not the first disagreement Pantaloon has had with a global food or drinks company.

A previous dispute with Pepsi, which Mr Biyani said was focused on disagreements about profit margins, resulted in Pantaloon taking some of the drink giant’s products out of its stores. That row has since been resolved and Pantaloon is again stocking Pepsi products.

The Cadbury dispute revolved around “pricing, margins and discrimination”, Mr Biyani said. He declined to say how much the Cadbury contract was worth.

One industry source downplayed Pantaloon’s claims. “This is just a negotiating tactic and one they have used before. In greenfield markets such as India, which are still maturing, these tactics are a lot more common.”

In the UK, retailers are reluctant to make their disputes with branded food suppliers public for fear of losing the chance to stock their products.

Global food and drink companies have increased their focus on the developing world in recent years as consumer markets have boomed. Industry insiders said the dispute suggested that local companies were growing more confident about standing up to foreign multinationals on pricing and other issues.

Pantaloon is expected to make revenues of more than 57b rupees (£685m) this year, according to JP Morgan. That is forecast to grow to 90bn rupees in 2009 and 124bn rupees in 2010, highlighting the growth potential of the company.

Cadbury has previously labelled India’s 41bn-rupee confectionery sector as a “battleground and must-win market”, according to local media reports.

Staples said on Wednesday it was raising its all-cash offer to 9.25 euros per share from the 9.15 euros it announced last week and compared to the 7.25 euros it offered in February.

Corporate Express said in a statement it had ended a plan to buy privately owned French rival Lyreco, which was seen as an attempt to fend off Staples.

Corporate Express shares were 1.4 percent higher at 9.20 euros by 1138 GMT, outperforming a 0.4 percent rise in the blue-chip index and almost triple the five-year low of 3.18 euros it touched in January before the bid battle began.

“We believe this means the bid by Staples will be successful and that Corporate Express will disappear from the Dutch market,” Rabo Securities wrote in a note to clients.

Analysts said a tie-up between a retailer and a wholesaler of office supplies would make strategic sense and could lead to big savings as both face a slowing U.S. economy, where rivals like Office Depot have warned of weakness.

“Corporate Express is simply being realistic, they did what they had to do. I think it is more than fair value for Corporate Express,” said Petercam analyst Fernand de Boer.

Corporate Express will pay a 30 million euro break-up fee to Lyreco, which said last week it had considered a counterbid for Corporate Express but market conditions were not favorable.

Lyreco Chief Executive Eric Bigeard told Reuters his firm would now review its options on expanding in North America and consider acquisitions in Europe and the Asia-Pacific region.

Staples said the firms had combined annual revenues of $27 billion with more than 94,000 employees in 28 countries.

Savings are likely to be in the United States where the companies have overlapping operations and could come to 60 million euros in three years, said Petercam’s de Boer, but the companies said they did not expect any major job losses.

Corporate Express said its boards unanimously recommended the offer, which expires on June 27 at 1530 GMT. It said it would still hold a shareholders meeting on June 18, but there would no longer be a vote on the proposed Lyreco deal.

INVESTOR PRESSURE

While Dutch regulations meant Staples could not raise its bid again after it offered 9.15 euros last week, it bought about 1.1 percent of Corporate Express shares at 9.25 euros each in an off-market transaction, meaning it has to pay that for the rest.

It said it now owns 13.4 percent of the firm’s ordinary shares and holders of about 23.3 percent of the Dutch company have already committed to accept Staples’ offer, which it will declare unconditional if it gets 51 percent of shares.

Staples said the deal gave Corporate Express an enterprise value of about 3.1 billion euros, including about 1.7 billion euros in equity with 182.9 million ordinary shares outstanding.

Later in the day Staples said it was increasing its offer for all Corporate Express’ convertible bonds to 1,346.71 euros per bond from the 1,332.15 euros offered previously.

Corporate Express Chief Executive Peter Ventress will take a new position as president of Staples International to oversee business outside of North America and play a key role in managing the integration of the two firms.

Staples said it expected settlement of the offer in July and that it had sufficient funding for the deal.The Staples deal comes after activist investors put pressure on Corporate Express due to poor performance in the United States, where it generates around 50 percent of sales.

It is just the latest in a slew of Dutch companies to be bought by a foreign rival, including bank ABN AMRO, electrical goods supplier Hagemeyer and food company Numico. Few government barriers to takeovers and a liberal Dutch corporate governance code have made them desirable targets.

Corporate Express trades at 16 times estimated 2008 earnings, compared with Staples at 15.5 times and Office Depot at 12.3 times, according to Reuters data.

Lehman Brothers Holdings Inc is providing Staples with financial advice; Clifford Chance LLP and WilmerHale LLP are providing legal and tax advice; and Weil Gotshal & Manges LLP is providing antitrust advice.

Deutsche Bank and JP Morgan advised Corporate Express.