Hershey, Ferrero in Talks for Joint Cadbury Bid

Hershey, Ferrero in Talks for Joint Cadbury Bid

U.S. chocolate giant Hershey Co. has been in high-level talks with Italian chocolate maker Ferrero Spa to possibly craft a rival joint bid to Kraft Foods Inc.'s $16.7 billion offer for Cadbury PLC, according to people familiar with the matter.

So far, talks between executives at the two firms have not produced an offer and it is unclear whether they will, these people said. The two sides have been in talks for several weeks with Hershey executives more aggressive about pursuing a deal, these people added.

In the last two weeks, Hershey Chief Executive David West has spoken with Ferrero bankers at least twice about teaming up to buy Cadbury, the British confectionery maker, one of these people said.

The discussions are in preliminary stages, however, and haven't included discussion of financial specifics, this person added. A main sticking point so far is which party would end up taking hold of Cadbury's higher-margin gum and candy businesses such as Trident and Halls. Ferrero–a privately-held company that makes Nutella chocolate spread and Tic Tacs with €6 billion ($8.9 billion) in sales last year—is also far smaller than Kraft.

Nor is it clear whether the Hershey Trust, the charitable organization that controls the Pennsylvania chocolate company, would go along with a joint bid. Hershey in recent weeks had all but given up on making a competitive bid for Cadbury, partly because it lacks the financial wherewithal to top Kraft's offer.

Putting together Ferrero and Cadbury operations could pose cost-cutting opportunities in Europe, said a research note on Tuesday from Nomura that was responding to media speculation about a possible Ferrero-Cadbury tie-up.

"As an entirely family controlled entity it is very difficult to gauge Ferrero's thinking here," the Nomura analysis said. "But being left on the sidelines of consolidation taking place around them can't be an attractive proposition."

The talks, however preliminary, are the first concrete evidence that rival bidders for Cadbury may emerge. Kraft, of Northfield, Ill., formally offered to purchase Cadbury for about $16 billion on Nov. 9. In its formal proposal, Kraft essentially maintained the offer it proposed on Sept. 7 when it first publicly announced its intention to buy Cadbury. Cadbury swiftly rejected the hostile offer, calling it "derisory."

If successful, a joint Hershey-Ferrero bid for Cadbury could help substantially build Hershey's sales outside North America and give it access to faster-growing gum and candy markets. About 85% of the Pennsylvania company's sales are in the U.S. It is unclear what strategic benefits Hershey could offer Ferrero, aside from pitching in money to beat out Kraft with a higher bid.

Cadbury declined to comment. Kraft spokesman Michael Mitchell declined to comment on "market rumors." Ferrero and Hershey also declined to comment.

Kraft had faced a U.K.-imposed deadline of Monday to make its proposal official or walk away. Many analysts had expected Kraft would boost the offer modestly. But the board of the U.S. food giant voted Friday to hold the offer at 300 pence in cash and 0.26 new Kraft share for each Cadbury share, according to a person familiar with the matter.