Italy's Ferrero and U.S.-based Hershey Co are considering a bid for chocolatier Cadbury Plc , but hostile bidder Kraft Foods Inc is still seen as the front-runner with its $16.8 billion offer.

Hershey and family-owned Ferrero, the maker of Nutella chocolate spread, both said separately on Wednesday they were reviewing a possible bid but gave no assurance that they would make a proposal for the British confectioner.

The two were asked by the UK Takeover Panel to clarify their intentions after Reuters and other media reported that they were discussing a joint bid, news which pushed Cadbury's shares to their highest level in nearly a month.

Cadbury said it would give proper consideration to any serious offer that delivers full value for the company, but stressed it has yet to receive such a bid. Cadbury has dismissed Kraft's offer as derisory.

The Ferrero and Hershey statements gave no hint that they might be working together on a joint bid. Analysts and investors doubt the two could rival the hostile cash-and-share offer from Kraft, though Cadbury could use interest from Hershey and Ferrero to extract a higher bid from Kraft.

What it means for Kraft is if they are going to want to sign, seal and deliver this, they are going to have to up their bid, said Edward Jones analyst Jack Russo.

Investors also expressed doubts.

It's a very long shot, and we would be very surprised if they got involved, said one top-10 Cadbury investor speaking on condition of anonymity, referring to Hershey and Ferrero.

A Kraft spokeswoman said the Oreo cookie and Velveeta cheese maker stood by its own offer on Wednesday, but declined to comment further on the company's strategy. Chief Executive Irene Rosenfeld had so far succeeded in lowering Cadbury investors' hopes for a big sweetener to the deal.

We remain confident that we are absolutely the best, most logical partner for Cadbury, spokeswoman Perry Yeatman said.

Cadbury shares rose above 800 pence for the first time in almost a month to a high of 802-1/2p before easing to 798.5p, up 1.3 percent, in London dealings. The shares traded at more than a 10 percent premium to Kraft's offer, which currently values Cadbury shares at 721p.

On the New York Stock Exchange, Kraft shares were down 0.6 percent at $27.47 and Hershey shares were down almost 1.2 percent at $37.96.

For a graphic comparing Cadbury, Kraft and Hershey, click: http:/


The cost to protect Hershey's debt with credit default swaps doubled on Wednesday after reports of a possible bid.

If Hershey came in as part of a counterbid, Kraft would be battling with one of its former executives in Hershey CEO David West. West left Kraft in 2001 and worked under yet another former Kraft executive, Richard Lenny, before replacing Lenny as Hershey CEO in 2007.

The Wall Street Journal reported at the time that representatives of the charitable trust that controls Hershey met with Cadbury Schweppes Plc about a possible deal without bringing in Lenny. The discussions occurred shortly before Cadbury split off its drinks business to focus on confectionery.

Analysts noted that Kraft took months to agree on a $9.2 billion loan for its Cadbury bid. Ferrero-Hershey would have to fund the bid with debt rather than equity, as Ferrero is privately owned and Hershey controlled by the Hershey Trust.

It's not impossible, but we would be skeptical, said analyst Alex Molloy at brokers Credit Suisse.


Hershey is much smaller than Cadbury and has high debt, and control by the trust raises complications, while the secretive Ferrero has made few acquisitions.

The Hershey Trust needs to ensure that it can meet its charitable purposes and protect its long-term income ... It will probably act conservatively and won't want to see Hershey overpay and take on a lot of leverage for an acquisition, said a lawyer at a top-10 London law firm.

The Trust has also said that Pennsylvania law requires it to maintain control over Hershey.

Traders speculated that a break-up of Cadbury would be a likely scenario if Hershey and Ferrero pressed ahead and won out.

Ferrero would want Cadbury's European chocolate business, while Hershey could take the international operations, one trader said, adding that the fact that the two groups might need to team up for a bid complicated matters.

JP Morgan is advising Hershey and is likely to provide financing to support its client, while Rothschild is advising Ferrero, according to sources close to the situation.

Kraft first disclosed its cash and shares offer for Cadbury in early September, and the rebuffed U.S. group turned hostile with its bid on November 9, with Cadbury again rejecting it.

Most analysts and investors expect Kraft to have to raise its bid for Cadbury, the world's second-largest confectionery company after Mars-Wrigley, to 800p or above to succeed, and Credit Suisse's Molloy expects it would have to pay 820-830p.

Nestle SA , the world's biggest food group, has also been cited as a potential partner for Hershey in a rival bid.

Kraft has 28 days, or up to December 7, to publish its official offer document, which would then trigger a 60-day bid timetable under UK takeover rules. That would give Ferrero-Hershey until early February to come up with any rival bid for Cadbury.

(Additional reporting by Paul Hoskins, Rhys Jones, Raji Menon and Brad Dorfman, editing by Gerald E. McCormick, Will Waterman, Andrew Callus and Sitaraman Shankar)