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City divided on Cadbury's new suitors

THE City was yesterday divided over the prospect for a Cadbury bidding war as Ferrero and Hershey confirmed they were in early talks about a possible offer for the UK giant. <br /><br />Some said that the presence of other potential bidders in the field would prompt Kraft to increase its offer. One analyst said: &ldquo;Kraft has to raise its offer no matter what to have it accepted by Cadbury shareholders &ndash; but the entrance of two possible white knights may allow it to raise its bid without losing too much face.&rdquo;<br /><br />Prior to yesterday, when news that Hershey and Ferrero were mulling a bid broke, Kraft boss Irene Rosenfeld had insisted there was no point &ldquo;bidding against herself&rdquo;, which was why&nbsp; she stuck with a hostile bid of &pound;9.8bn that values Cadbury&rsquo;s shares at 717p.<br /><br />Analysts said the synergies from a deal with Ferrero and Hershey would not be as great as those from a Kraft tie up. Charles Stanley&rsquo;s Jeremy Batstone-Carr said: &ldquo;Ferrero doesn&rsquo;t have a strong reputation for deal making. It has a limited chance of success.&rdquo;<br /><br />Hershey would find it almost impossible to afford Cadbury on its own.Because the US firm is majority-owned by a trust, which must control the firm under state law, it would have to fund most of the deal in cash rather than equity. Cadbury shareholders would balk at owning non-voting shares in a US firm.<br /><br />Hershey has $119m (&pound;71m) in cash and debt of $1.7bn. Its earnings over the past 12 months were just $1bn. Analysts say the firm can only add a few billion to its debt pile without losing its investment grade status.&nbsp; That means it would need to raise close to half of Cadbury&rsquo;s &pound;10.8bn market valuation in non-voting shares, making a solo bid impossible.