Hershey may find Cadbury deal too much to swallow

Kraft Foods could have a clear field in its race to acquire chocolate giant Cadbury.

Reports in the US suggest Hershey, previously seen as a likely white knight which could contest Kraft's £10 billion bid with its own offer, is likely to walk away.

Hershey is the most famous chocolate maker in America, comparable with Cadbury in the UK.

Analysts have argued it would be bad news for Hershey if Cadbury's products were aligned with Kraft's marketing muscle. That would be a serious threat to Hershey's growth plans as it presently holds the licence to make and sell Cadbury brands in the US.

The two companies are believed to have held merger talks two years ago which eventually came to nothing. Hershey hired advisers to ponder a fresh deal, but may have concluded that it simply can't compete with Kraft.

According to the Wall Street Journal, Hershey executives concede that the company is too small to top the Kraft bid.

It could only raise about $4 billion from the debt markets without lowering its own investment rating, leaving a huge shortfall to make up.

Hershey could offer its own shares to fill the gap, but Cadbury investors are likely to want any bid to be dominated by cash.

Yesterday the UK Takeover Panel gave Kraft until 9 November to formalise its offer for Cadbury.

Cadbury claims it does not want to do the deal.