Hershey, Ferrero in talks over Cadbury: source

Chocolate makers Hershey Co and Ferrero SpA are considering a joint bid for Cadbury Plc that could help the British confectioner fend off a hostile takeover by Kraft Foods Inc

A source familiar with the talks between U.S.-based Hershey and Italy's Ferrero said on Tuesday that the discussions between the two sides were "very preliminary. Very early in the process."

Hershey executives have been more aggressive about pursuing a deal, but financial details have not been discussed and no offer has been made, the Wall Street Journal reported on Tuesday.

The talks are the strongest sign yet of a possible rival bid to Kraft's $16.7 billion offer, which Cadbury rejected and said was "derisory".

Another person familiar with the situation said that Cadbury had not been contacted by Ferrero but would consider any attractive offer. Analysts and traders said there was a possibility that such an alliance might emerge and pose a viable defense against Kraft.

"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," the person said.

Ferrero and Cadbury both declined comment, and Hershey officials could not immediately be reached.

Earlier on Tuesday, Italian business daily Il Sole 24 Ore said family-owned Ferrero, which makes Nutella chocolate spread and Tic-Tac candy, could join financial investors and private equity players considered friendly to Cadbury for a possible alliance.

"We believe that if this scenario were proposed as a potential defense measure by Cadbury, the potential value the market might be prepared to award it would not be materially different to that of a revised Kraft offer," at 820 pence per share, Nomura analyst Alex Smith said of a Cadbury-Ferrero combination.

Kraft's cash and stock offer for Cadbury is closer to 726 pence per share.

- Reuters