Hershey, Nestle may challenge Kraft's Cadbury offer

Hershey Co. and Nestle SA have been in contact about Cadbury Plc and may challenge an offer by Kraft Foods Inc., said two people familiar with the talks.

An agreement between Hershey and Nestle may not be reached, said the people, who declined to be identified because the talks are private. Hershey is exploring all options and would prefer to bid alone, the people said.

Kraft's unsolicited $10.2 billion-pound ($17 billion) offer for Cadbury would create the largest maker of candy, threatening Nestle's and Hershey's market positions. A partnership may enable the companies to compete for Cadbury while avoiding antitrust hurdles for Nestle and excessive debt for Hershey.

"There is compelling logic for both Nestle and Hershey to seek to structure an alternative to the current offer for Cadbury from Kraft," Alex Smith, an analyst at Nomura International Plc in London, said in a note yesterday.

Nestle, the world's biggest food company, could buy back the U.S. rights to Kit Kat and Rolo brands from Hershey, giving Hershey the power to fund a combination with Cadbury that would value the U.K. company at 840 pence a share, Nomura said.

Nina Backes, a Nestle spokeswoman, declined to comment earlier today when asked about Cadbury. Kirk Saville, a spokesman for Hershey, also declined to comment.

Trevor Datson, a Cadbury spokesman, declined to comment on whether Cadbury has received an approach from Hershey or Nestle.

Kraft Offer

Cadbury, which has traded above Kraft's cash-and-stock offer since it was made, fell 5 pence to 795 pence in London trading. Northfield-based Kraft rose 15 cents to $26.57 at 4 p.m. in New York Stock Exchange composite trading.

Kraft, the maker of Oreo cookies and Toblerone chocolate, is offering 718 pence a share, based on that closing stock price and began its unsolicited tender offer for Cadbury today.

Holders of London-based Cadbury have until Jan. 5 to accept the offer, which is the same as a proposal outlined on Sept. 7 and Nov. 9, Kraft said in a statement. The company can extend the deadline, and has until Feb. 2 to win over shareholders.

"We're not going to engage in speculation on possible talks of others," said Mike Mitchell, a Kraft spokesman, in an e-mail. "We're the only offer on the table. It's fully financed and provides a substantial premium to Cadbury shareholders, both in terms of immediate value and growth potential over the longer term."

Response Deadline

Cadbury has 14 days to file a response arguing against a takeover or seeking a higher price. The company has called Kraft's cash-and-stock offer an "unappealing prospect" from a "low-growth" conglomerate.

Hershey, the maker of Reese's Peanut Butter Cups, said in a Nov. 18 regulatory filing it was "reviewing its options." Nestle is weighing options including a possible bid for Cadbury, two people with knowledge of the matter said last month.

Hershey, based in the Pennsylvania town of the same name, rose 9 cents to $35.99 in New York. Nestle shares advanced 13 centimes to 49.90 francs in Zurich.

Ferrero SpA, the Italian maker of Tic Tacs and Nutella spread, said separately last month it was in "preliminary stages of evaluating its options in respect to Cadbury."

Kraft has 46 days to raise its bid if it chooses, according to U.K. takeover law. A competing bid would trigger a new timetable.

"Ultimately, there's no counteroffer on the table, no matter what the noise has been, so there's no reason for Kraft to have raised their offer," said Alexia Howard, an analyst with Sanford C. Bernstein & Co. in New York.