Cadbury and U.S. rival Hershey have held talks over a possible friendly bid by the American firm, the Sunday Telegraph reported, citing market sources.

The report said Hershey was still considering a bid but did not want to enter a hostile auction battle with Kraft Foods , which made a formal $16.1 billion cash-and-share offer to Cadbury shareholders earlier this month.

Cadbury, whose shareholders have until February 2 to decide whether to accept Kraft's bid, has said it is not interested in a bid at that level and that its performance on revenue and margins means that a far higher offer is warranted.

Hershey and the charitable trust that controls the chocolate maker is still considering whether it will make a bid that is likely to include a higher cash element than Kraft's, said the report, which added that any bid was unlikely to materialize before the New Year.

Cadbury is due to release a defense document, which is likely to reveal plans for growth beyond 2011 on both revenues and margins, on Monday.

A Hershey spokesman declined to comment when contacted by Reuters and a spokesman for the Trust could not be reached for comment.

Cadbury could not immediately be reached for comment.

(Reporting by Rhys Jones; editing by Simon Jessop)