On Friday, US chocolate maker Hershey was reported to be considering launching a bid of at least $17-billion for Cadbury.
Hershey has lined up deal funding from Bank of America and JP Morgan Chase to make a solo offer for Cadbury, but is also weighing a joint bid with Ferrero.
The Hershey interest could put pressure on Kraft to sweeten its $16.5-billion offer, which Cadbury rejected last week as "derisory".
"It's still very fluid and there are multiple prongs to this," the source said on condition of anonymity. "It's still very early. But they need at least $17-billion to top Kraft."
Citing people familiar with the dealing, the Wall Street Journal reported on Friday that the impetus for the Hershey bid comes from the charitable trust controlling the company.
The trust is pushing Hershey chief executive David West to compete with Kraft's offer, but wants to structure a deal so that it remains in charge of Hershey, the report said.
Officials at the Hershey Trust were not immediately available for comment. Hershey, Kraft and Cadbury declined to comment.
A solo Hershey bid would be the most transformative move the company has made in its 100-year history. The company's market capitalisation stands at $8.3-billion, whereas Cadbury is valued at $18.1-billion.
"Given that they generate 85% of sales from the domestic market, gaining access to Cadbury's platform would be highly advantageous," said Morningstar analyst Erin Swanson, noting Cadbury's presence in emerging markets.
She said Hershey would be able to expand its sweets and gum business. But a deal would aim to capture new growth as there is little overlap between the companies' businesses and therefore slim opportunity for cost savings.
Hershey's offer could include at least $10-billion in cash from Hershey and $2-billion in new Hershey shares, plus $3-billion to $5-billion from outside investors in exchange for equity in Hershey, said the Journal. That would trump the $6.74-billion in cash indicated in Kraft's cash and stock offer for Cadbury, though Kraft has secured $9.2-billion in financing and could raise the cash component of its offer.
But a source familiar with the situation asked whether Hershey was getting ahead of itself.
"Buying a company more than twice its size could be a risk and the trust has previously shied away from risk, given its mandate," the source said.
A key figure in any Hershey bid is Byron Trott, a favourite banker of legendary investor Warren Buffett, whose Berkshire Hathaway is the largest investor in Kraft. The Kraft connection goes further, because West was an executive of the world's No 2 food maker.
Hershey, which tried and failed to combine with Cadbury in 2007, is also being advised by Jamie Grant, brother of actor Hugh Grant, as well as by Watch Hill Partners, a firm acquired by FBR Capital Markets this year.
This week, Hershey disclosed that it was considering a bid for Cadbury and sources familiar with the matter said it was also discussing a joint offer with Ferrero.
A source familiar with the situation said that the two companies have considered breaking the UK confectioner up into separate businesses as part of a friendly, all-cash bid.
But both Ferrero and Hershey have interest in Cadbury's chocolate business, but Cadbury might not be keen on a friendly bid if it calls for the breaking up of the company.
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