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Monday, 26 August, 2002, 14:06 GMT 15:06 UK
Nestle 'seeks takeover' of Hershey
Hershey's Chocolate World image
Hershey's is regarded as part of Pennsylvania history
Swiss-based Nestle has escalated its assault on the US market by offering $11.5bn (7.5bn) for chocolate giant Hershey Foods, a newspaper has said.

Nestle chiefs have reportedly presented a preliminary bid of $82-85 a share for the iconic chocolate firm, following two tours of Hershey factories last week, USA Today said.

We think it's time to put a halt to this sale

Mike Fisher, attorney general, Pennsylvania
The merger of the maker of Kit-Kat and Hunky with the manufacturer of York peppermint patties and Hershey's Nuggets chocolates would be a good strategic fit, a banker told Reuters news agency.

Nestle tended "to be aggressive bidders for good assets," the banker added.

But sources have said that negotiations were still at an early stage and could easily fail, and Hershey shares remained well below the reported offer price in Monday trade, indicating investors were sceptical about the chances of success.

Nestle itself, which has admitted eyeing a possible deal, dismissed talk of a preliminary offer, saying: "Nestle does not comment on market fantasy."

The report comes two months after Nestle revealed it was to take a majority stake in US ice-cream maker Dreyer's Grand Ice Cream.

Front runners

Hershey's future has come under increasing scrutiny since the Hershey Trust, which controls 77% of voting shares in the firm, revealed efforts to sell its stake.

The trust, which runs a school for disadvantaged children, said it wanted to diversify its assets.

Nestle and Kraft Foods, part of the Philip Morris empire, are seen by analysts as likely suitors.

"From the aspect of financial strength, only these who have the chance," said Bank Vontobel analyst Rene Weber said.

Although UK-based Cadbury Schweppes, with which Hershey has trade agreements, is also seen as a potential bidder, there are doubts it could afford the purchase.

Political concerns

But while a tie-up with Hershey could offer Nestle significant potential for efficiency improvements, observers believe, it would also come under severe scrutiny by competition watchdogs.

A combined Nestle-Hershey would boast more than half the US chocolate market, while Kraft-Hershey would dominate the US confectionary market, making it likely regulators would order the sale of some brands as part of any merger consent.

"I don't think there is any question that some of the brands that Nestle has now would have to be sold," Leonard Teitelbaum from Merrill Lynch in New York told the BBC's World Business Report.

And with Hershey viewed as a US corporate icon, a takeover could also face political challenges.

Pennsylvania's attorney general, Mike Fisher, on Friday filed a motion seeking to halt any sale of Hershey, on grounds that a takeover could hurt the town of Hershey, which the firm developed following its foundation in 1894.

"We think it's time to put a halt to this sale," Mr Fisher said.

"We are concerned about the speed in which the Hershey Trust seems to be moving forward with their plans."

In Zurich, Nestle shares, while weak on opening, had recovered to stand unchanged at 330.50 Swiss francs in afternoon trade.

In New York, shares in Hershey Foods stood $1.97 higher at $77.00 in early trade.

Leonard Teitelbaum, Merrill Lynch in New York
"I don't think there's any question some of the brands Nestle has now would have to be sold"
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