Hershey, Ferrero considering rival bid for Cadbury

AP News
Posted: Nov 18, 2009 1:29 PM

Hershey, hoping to expand its overseas presence, has lined up a potential partner as the most recognizable name in American chocolate considers starting a bidding war for British candy maker Cadbury PLC.

Italian candymaker Ferrero International SA could give The Hershey Co. the financial firepower to top a $16.4 billion hostile bid by Kraft Foods Inc.

Hershey and Ferrero said Wednesday they are considering a possible offer for Cadbury.

"Hershey confirms that it is reviewing its options and at this stage there can be no assurance that any proposal or offer from Hershey will be forthcoming," the company said in an announcement to the London Stock Exchange on Wednesday. Ferrero, which makes Nutella chocolate spread and Tic Tacs, posted a similar statement.

Some analysts consider the pair a dark horse.

"The fact that they (Kraft) are alone and have the cash, that's why I think their bargaining power is greater, the ability to upbid is greater and their ability to pay for it is much greater than Hershey," Frost & Sullivan analyst Christopher Shanahan said Wednesday.

BMO Capital Markets analyst Kenneth Zaslow said Cadbury, with its strong international portfolio, would be more important to Hershey's long-term success than to that of Kraft.

"Hershey's long-term growth rate is limited by the inability of its product to travel far beyond the U.S. borders," Zaslow wrote in a note to investors.

Cadbury said it will consider any serious offer that delivers full value for the company. That would mean more than Kraft's bid, announced Nov. 9, which it dismissed as "derisory." Now that Kraft may have competition, analysts say the price for Cadbury is likely to go higher.

Kraft said its next step remains the same, to send an offer document to Cadbury shareholders by Dec. 7.

Kraft, the world's second-largest foodmaker behind Nestle, maintained that its offer "is fair and attractive" and said it remains confident it is the most logical player.

Ferrero is a privately held company with $9 billion in revenue last year. Hershey posted revenue of $5.13 billion in its most recent full year.

Teaming up with Ferrero could give Hershey the financial heft to get into the bidding. Hershey is believed to need a larger, well-financed partner because of its smaller size and a complicated ownership structure.

Hershey's late founder, Milton S. Hershey, established a charitable trust that remains the company's majority owner. The trust's chairman, LeRoy S. Zimmerman, has said the company is committed to aggressively pursuing growth strategies, but he has said the trust will not give up its controlling stake.

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Analysts say that limits the company's flexibility to grow through a merger if issuing stock to pay for an acquisition would dilute that stake.

The trust's position goes back to 2002, when the previous trust board sought to sell the company. That prompted a ferocious community backlash and a lawsuit by the state attorney general, who led a purge of trust board members who voted for a sale.

Hershey has another interest in Cadbury. It has a longstanding license to sell some Cadbury products, including Cadbury and Caramello chocolate brands in the U.S. and York peppermint patties and Almond Joy worldwide.

Cadbury has a much stronger sales position in fast-developing countries, such as India, where sales are climbing more quickly, while about 85 to 90 percent of Hershey's sales are in the relatively slow-growth market of North America.


AP Business Writers Sarah Skidmore in Portland, Ore., Michael Lee in New York and Robert Barr in London contributed to this report.