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

Meanwhile Kraft locked in financing agreements with lenders backing its bid, a strategy likely to thwart counter offers, according to Reuters Loan Pricing Corp.

Cadbury said it would give proper consideration to any serious offer that delivers full value for the company, but stressed it has yet to see such a bid.

Cadbury Chairman Roger Carr 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 the interest 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.

Cadbury shares rose above 800 pence for the first time in almost a month to a high of 802-1/2p before easing to 797.6p, up 1.2 percent. The shares traded at more than a 10 percent premium to Kraft's offer, currently valued at 721p.

Kraft shares ended the day's trade down 1.4 percent to close to $27.26 and Hershey shares closed down more than 2 percent to $37.63.


A Kraft spokeswoman said the Oreo cookie and Velveeta cheese maker stood by its 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.

Kraft has signed exclusivity agreements with the banks financing its bid, Reuters Loan Pricing Corp reported, citing unnamed sources. The exclusivity agreement prevents the banks in Kraft's 5.5 billion pounds, 364-day bridge loan from jumping ship to finance any rival bidders.

The unusual move to sign exclusivity agreements with the lenders is likely to thwart counter offers by locking in more and more banks into its loan agreement, thereby limiting the lending universe available to potential rival bidders, according to RLPC.

Whatever shape a potential deal takes, it would shake up the global candy market. Cadbury had about 10.2 percent of that market in 2008, trailing only Mars Inc, which had a 14.5 percent share, according to Euromonitor International.

Kraft, Hershey and Ferrero are closely lumped at fourth through sixth place, with shares of 4.7 percent, 4.6 and 4.5 percent, respectively.

Antitrust regulators will likely look closely at any combination, delaying a possible deal for months, said John Briggs, antitrust lawyer at the New York law firm Axinn Veltrop and Harkrider LLP.

If Hershey and Ferrero go together, that would be a double risk, he said.

But if Kraft wins Cadbury, Hershey could shrink. It now has the license to sell Cadbury products in the United States.


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

Ferrero-Hershey would have to fund the bid with debt rather than equity, as Ferrero is privately owned and Hershey is controlled by a charitable trust.

Smaller than Cadbury and with relatively high debt, Hershey's status as subject to the Hershey Trust complicates a deal.

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 ovrpay and take on a lot of leverage for an acquisition, said a lawyer at a top-10 London law firm.

Ferrero has made no acquisitions in its 60-year history and has built a reputation for secrecy.

The company doesn't tell us anything, total reserve reigns. Up until a few years ago, there wasn't even a sign saying Ferrero on the Alba factory, said one employee in the factory car park in Alba, Italy.

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 to 800p or above to succeed.

Kraft has 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.

($1.68=1 pound)

(Additional reporting by Paul Hoskins, Rhys Jones, Raji Menon, Victoria Howley and Diane Bartz, editing by Michele Gershberg, Gerald E. McCormick, Leslie Gevirtz and Carol Bishopric)