Money Matters - Simplified

Hershey and Ferrero may join hands to buy Cadbury

A bidding war for Cadbury has moved closer after Hershey and Ferrero said they are considering their options over the firm

London, November 18 -- The prospects of 63-year-old Ferrero Spa teaming with Hershey Co. (NYSE: HSY) to bid for Cadbury (NYSE: CBY) are growing after the U.K. confectioner rejected a $16.8 billion unsolicited offer from Kraft Foods Inc.

With Kraft's chances diminishing, Hershey and Ferrero might make the most of the situation. According to reports, the two companies are currently engaged in high level talks and financial specifications on a possible joint venture, though nothing concrete has emerged so far.

Manoj Ladwa, senior trader at ETX Capital said, “This is a relief for Cadbury’s as it appears that two white knights have appeared on the horizon. After the repeated low-balling of Kraft the rumors that Hersheys and Ferrero are preparing a joint bid will be welcomed by the Cadbury’s board.”

Statements issued by the companies
The US chocolate giant Hershey issued a statement declaring, "Hershey confirms it is reviewing its options and at this stage there can be no assurance that any proposal of an offer from Hershey will be forthcoming. A further announcement will be made in due course if appropriate."

Though the family run Ferrero is small, its brands are popular but concentrated in Germany, Italy and France. A link-up with Hershey and Cadbury could expand its market reach.

Ferrero said, “it is in the preliminary stages of evaluating its options in respect of Cadbury. There can be no certainty that any proposal relating to Cadbury will ultimately be made."

Cadbury refrained from making any comments. Nevertheless a source close to the company said: "Cadbury has heard nothing from Ferrero or people acting for it. Cadbury is not up for sale, but the company would give proper consideration to any offer that valued it properly and would be of interest to shareholders."

Prospects of joint bid
According to sources, Hershey has been more aggressive about pursuing a joint bid. Acquiring Cadbury would expand its sales outside North America since 85 percent of the company's sales are in the slow moving US confectionery market.

The two companies are believed to be debating over which company would take hold of Cadbury’s fast growing gum and candy businesses such as Trident chewing gum and Halls cough sweets. In addition, it is uncertain whether the Hershey Trust, the charitable trust that controls the Pennsylvania firm would be in favor of the bid.

About Cadbury
Cadbury began as a grocer's shop in Birmingham in 1824. Its Dairy Milk is the UK's top-selling chocolate bar. More than 250 million are sold every year in 33 countries.

Shares in Cadbury rose above 800 pence for the first time since Oct. 21 on the hopes of a possible rival bid by Hershey and Ferrero.