MCM – Made of Collective Mess

The charitable trust that controls Hershey has encocUS confectioner’s management to pursue a $17bn bid for British chocolate-maker Cadbury, topping Kraft Foods’ hostile $16.2bn offer.

While a formal bid is not believed to be imminent, Hershey is weighing a transaction that would include a combination of stock, debt and a multibillion-dollar contribution from deep-pocketed investors such as pension funds, people familiar with the matter said.

The trust’s push, which comes two days after Hershey told the UK takeover panel it was considering joining the battle for Cadbury, raises the stakes for both the confectioner and its would-be fellow suitor, Kraft.

Any acquisition agreement would almost certainly add billions of dollars of debt on to Hershey’s balance sheet, putting its credit ratings at risk. People familiar with Kraft’s thinking have noted the US consumer-goods giant has not ruled out raising the 717p-per-share bid it formalised last week. It also remains unclear whether Italy’s Ferrero, a family-run chocolate company that also alerted UK authorities of its interest in bidding for Cadbury, will join Hershey’s offer or seek its own deal.

A Kraft spokesman said yesterday: “Ours is the only bid on the table and we remain the most credible buyer.”

Hershey officials did not return calls seeking comment.

Hershey may be a welcome alternative in what has become an increasingly contentious standoff between Cadbury’s top executives and Kraft. Cadbury’s long-standing relationship with Hershey, and its shared focus as a pure-play confectioner, has made the possible tie-up an idea the UK candy company pursued as recently as 2007.

Adding Cadbury would give Hershey, which already produces the UK company’s chocolates in the US, access to international markets that have remained out its reach.

Nevertheless, Hershey’s corporate structure, in which a charitable trust controls 80 per cent of the voting shares and 32 per cent of the total equity, has complicated any potential combination – especially one involving what is a bigger company in Cadbury. “We have always said we would give proper consideration to any serious offer that delivers full value for the company,” a Cadbury spokesman said earlier this week.

Representatives from Ferrero, which makes Nutella chocolate spread, flew to the US last week to hold talks with Hershey, people close to the situation have said. Those discussions were highly preliminary and no decision to form a consortium with Hershey was taken, those people said. Neither company said they were working together.

Shares in Cadbury have surged 32 per cent this year as Kraft’s takeover plans gained steam. The stock rose 9.5p to 800.5p yesterday while Hershey shares, which have climbed 7 per cent in 2009, were little changed.