Crunchie time approaching for Cadbury bid

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LONDON (ShareCast) - Speculation about the future of Dairy Milk and Crème Egg maker Cadbury (LSE: CBRY.L - news) grew over the week-end, with the chances increasing of a rival bid to the Kraft Foods (NYSE: KFT - news) offer.

US confectioner Hershey (NYSE: HSY - news) , which already sells a number of Cadbury products in North America under licence, is thought to be contemplating launching a 'white knight' crusade to save Cadbury from the clutches of Kraft, but it may face opposition from Nestle (4707.KL - news) , the Swiss company that acquired another famous UK confectioner, Rowntree-Mackintosh, back in 1988 and may now be looking at buying another.

According to the Financial Times, given a choice between Hershey, Kraft and Nestle, Cadbury would have a strong preference for Hershey, given the long commercial partnership between the two companies, though that does not necessarily mean the historic UK company is ready to throw in the towel and give up its independence just yet.

There had been doubts over Hershey's ability to raise the wherewithal to match the $9.8bn offer from Kraft, the US processed foods group which owns the Terry's chocolate company, formerly based in York but which now has all its production facilities oversees.

However, reports suggest that the Hershey Trust, which owns a controlling stake in Hershey, is prepared to drop its long standing objection to the company taking on heavy debt, and is encouraging the US company to gear up to launch an offer for Cadbury that would contain a larger cash element than the Kraft bid.

Another option for Hersehy would be to team up with Italian confectionery company, Ferrero, to launch a joint bid.

Broker Charles Stanley thinks 'acquiring Cadbury would be an impossible task for Hershey alone but might be more manageable in the context of other interested parties. Ferrero was last week's front running rival and is, at least in terms of sales, of a similar size to Cadbury and is, apparently, debt-free.'

The broker suggests that private equity buy-out specialist KKR is also interested in getting involved.

The speculation concerning rival bids has led to rumours that Kraft, still the only company to officially launch a bid for Cadbury, is prepared to improve the terms of its offer if another bid emerges. Cadbury described the terms of the Kraft offer as 'derisory'; its shares are trading almost a pound above the value implied by Kraft's offer terms.