Hershey to enter fight for Cadbury

Hershey, the US confectioner, is set to enter the bidding battle for West Midlands chocolate maker Cadbury, according to reports today.

The company behind the famous Hershey bar has given the green light for the bid, with a formal offer set to be made before the January 23 deadline.

A counter-bid to USA food giant Kraft's £10.4 billion hostile offer would be welcomed by the Dairy Milk maker, which has consistently rejected the unwanted approach.

Although Cadbury – with its historic home in Bournville, Birmingham, and employing around 2,500 people in the West Midlands – has not solicited a "white knight" bid from Hershey publicly, it has made no secret of the fact that it favours Hershey to Kraft.

Cadbury chairman Roger Carr has already said that Hershey, which owns the rights to the Cadbury brand in the US, is "more appealing".

But Hershey, which is controlled by a charitable trust, would have to come in with a higher offer than Kraft's present bid to win the support of Cadbury shareholders.

Today's report in the Financial Times claims that according to the bid plan Hershey Foods would authorise a US investment firm to attract private equity backers, with Hershey prepared to make an investment of $1.25 billion US dollars – £767 million.

The equity investments would reduce the level of debt needed to finance a deal, so would not threaten Hershey's credit rating. Kraft chief executive Irene Rosenfeld met some of Cadbury's top UK institutional investors in London yesterday in an effort drum up their support. Cadbury shareholders have to vote on the Kraft offer by February 2.

But investors said the meetings had not changed their decision to reject the cash and shares offer unless Kraft increased its bid – and added more cash. At the moment less than half the offer is in cash. Kraft, the world's second largest food group, is believed to be considering raising its offer before the UK Takeover Panel deadline on January 19.

In a separate development the family that owns Ferrero, the Italian firm which makes the Rocher brand so popular in the UK, has decided not to join the takeover tussle for Cadbury.

Last night Business Secretary Lord Mandelson called on shareholders to be "genuinely critical" of takeover bids, and for an approach to deals that better reflected long-term interests rather than short-term gains – seen as the latest government attempt to rally support for Cadbury against the Kraft bid.