(By Don Miller )Hershey Co. (NYSE: HSY) and Italian-based confectioner Ferrero SpA are considering a possible bid for U.K. candy giant Cadbury PLC (NYSE ADR: CBRY), raising the potential for a costly bidding war. But should a battle take place, U.S. food giant Kraft Foods Inc. (NYSE: KFT) is still the odds-on favorite.
Hershey, the maker of Reese's Peanut Butter Cups, said in a statement it's "reviewing its options," leaving open the door to an offer but not saying one would be forthcoming. Ferrero, the Italian maker of Tic Tacs and Nutella spread, said it was in "preliminary stages of evaluating its options in respect to Cadbury," according to Reuters.
Neither company hinted that they were working together on a joint bid, one that most analysts doubt could top the hostile $16.2 billion cash-and-share offer from Kraft. After media reports by Reuters, the two were asked by the U.K. Takeover Panel to clarify their intentions.
Cadbury, which has repeatedly rejected Kraft's bid as inadequate, saw its shares rise to their highest levels in almost a month yesterday (Wednesday), gaining 9.5 pence, or 1.2%, to 797.5 pence ($13.39) at 4:35 p.m. in London trading. Kraft's offer is currently valued at about 726 pence ($12.20) a share.
Most analysts remain skeptical Hershey and Ferrero can outbid Kraft due to structural difficulties.
"There are many barriers to Hershey and Ferrero launching a formal offer. The degrees of freedom on financing aren't high for either." Martin Deboo, an analyst at Investec in London, told Bloomberg News.
Hershey is controlled by a charitable trust, and is much smaller than Cadbury, analysts noted. Ferrero is privately owned and has limited experience with acquisitions.
Complicating the deal for Hershey, which already carries a heavy debt load, are trust provisions that dictate a bid would need to be funded with debt rather than equity.
"The only way Hershey could finance a bid is if the trust decided to move to a single-class share structure, relinquishing its control and making it easier…to sell new stock," Pablo Zuanic, an analyst at JPMorgan Chase & Co. (NYSE: JPM) in London, told Bloomberg.
