Hershey Contemplating Take-over of Cadbury (HSY, CBY, KFT)

The Hershey’s Company (NYSE: HSY), controlled by a charitable trust worth 6.2 billion, is contemplating a bid worth $17 billion for ownership of trouble chocolate maker Cadbury PLC (NYSE: CBY) . In doing so, it would be challenging Food conglomerate Kraft Foods Inc. (NYSE: KFT) in its takeover bid for Cadbury. At the forefront of this change for the 100 year old chocolate company is Leroy Zimmerman, the head of the charitable trust.

However, there is opposition for the takeover of the much larger Cadbury. For one, they would be taking on a company that is almost twice its size with a huge amount of debt. Investors in Hershey's are also concerned about diluting their shares with the acquisition of Cadbury. Furthermore, the move can be seen as a violation of their fiduciary responsibilities as it places Hershey’s at risk.

The same concerns were evident in a failed attempt to link up the two companies in 2007. This was also the concern in 2002 when community groups helped stop the company from selling themselves to Mars Wrigley that year.

Kraft has also been in talks to takeover the British chocolate maker, Cadbury and making them the largest confectioner above current number one Mars Wrigley. If Hershey’s pushes through with their plan, it would put them in direct competition with Kraft Foods.

The takeover of Cadbury would more likely not happen because of the sheer size of the transaction. However, sources say that Hershey’s are talking with Italian chocolate maker Ferrero to help take on Cadbury. It would make much more sense for Hershey’s to partner with Swiss Food Group Nestle(VTX: NESN) however, talks with them have not gained any significant headway.