(RTTNews) - U.S. chocolate maker Hershey Co. (HSY: News ) is in talks with Italian chocolate maker Ferrero SpA about a potential joint venture for launching a bid for UK-based confectioner Cadbury Plc (CBY: News ,CBRY.L: News , CDSCF.PK), media reported Tuesday citing people familiar with the talks.

As per reports, the discussions between Hershey and Ferraro are in the preliminary stage and no financial specifics have been discussed. The joint bid would help Cadbury to fend off the $16 billion hostile takeover bid made by Kraft Foods, Inc. (KFT: News ).

On November 9, Kraft Foods made a formal unsolicited offer to acquire Cadbury. However, the British confectioner rejected the offer and encouraged shareholders to turn down the bid, noting it is worse than a previous offer due to the fall in Kraft's share price since September.

Kraft's cash and shares offer valued Cadbury at GBP 9.8 billion, or $16.3 billion, below the GBP 10.2 billion offer it made in September before Kraft's shares slid and the dollar slumped badly versus the sterling. It is expected that Kraft will have to raise its bid to win over Cadbury shareholders.

Reports said that Hershey is in talks with banks to line up billions of dollars to launch a rival bid. The company has reportedly talked to JPMorgan and Bank of America about financing.

A connection with Hershey and Cadbury is expected to give Ferrero a platform with growth potential in the British market. Ferrero, which is a family-owned business with annual sales of $9 billion, is currently concentrated in Germany, Italy and France. Given Ferrero's strong financial position, the company is expected to have little difficulty in generating the cash required for the offer, a report said.
Meanwhile, a combination with Cadbury would help Hershey largely to build sales outside North America, while giving access to faster-growing gum and candy markets. In addition, Cadbury's networks in emerging markets such as India and Latin America would be growth drivers for Hershey in those countries.

HSY closed Tuesday's trading at $38.41, down $0.31, on a volume of 2.48 million shares.

CBY rose $1.55 on Tuesday and closed trading at $54, on a volume of 1.34 million shares.

On the LSE, CBRY.L is trading at 788 pence, up 6.50 pence, on 3.41 million shares.

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by RTT Staff Writer

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