Italian candy-to-chocolate maker Ferrero International SA and Hershey Co (HSY) of the U.S. are considering an all-cash bid for a large part of U.K. confectioner Cadbury (CBY) rather than trying to buy the whole company as one possible option to thwart Kraft Foods Inc. (KFT), people with knowledge of the situation told Dow Jones Newswires Friday.

The people said talks are ongoing and all options are under discussion, but the two companies want to strike a friendly deal with Cadbury, the people said. The options include launching a bid for the whole of Cadbury or buying a large enough stake to prevent Kraft from buying the British company.

"This is a developing story and all the details are under discussion at the moment," one person said.

Ferrero didn't respond to email requests or phone calls.

The Italian company, which counts Ferrero Rocher, Tic-Tac and Nutella among its products, has well over EUR2 billion in cash available for a Cadbury offer, the people said. Ferrero's advisors value the Italian company's share of any deal at over EUR5 billion, they added.

Italian bank Mediobanca (MB.MI) and Rothschild are advising Ferrero on the potential deal, and are working on a plan that could split Cadbury's chocolate and gum businesses with Hershey, another person involved in the talks said. Both Ferrero and Hershey are interested in Cadbury's chocolate operations, the person added.

Meetings between members of the Ferrero family and its advisors will continue in coming days, the people said.

According to press reports, Intesa Sanpaolo SpA (ISP.MI) and UniCredit SpA (UCG.MI) could be involved in working on a deal in the future.

Mediobanca, UniCredit and Intesa Sanpaolo all declined to comment.

Pennsylvania-based candymaker Hershey, emboldened by improving financial markets, and Ferrero separately said Wednesday that they were reviewing their options regarding Cadbury.

Hershey Chief Executive David West in the last two weeks has spoken with Ferrero bankers at least twice about teaming up to buy Cadbury, one person familiar with the matter told the Wall Street Journal earlier this week.

Cadbury has rejected an hostile cash-and shares offer from Kraft, which currently values the British company at GBP9.9 billion, or 723 pence a share. Cadbury says Kraft's bid undervalues the company, but has said it would consider any bid that it feels offers value to its shareholders.

Analysts say a bid would have to be above 800 pence a share, and at 1422 GMT Friday, Cadbury's shares were trading up 4 pence, or 0.6%, at 796 pence.

Cadbury has in the past looked into a possible merger with Hershey, only for the plans to be scuppered by the Hershey Trust, the charitable organization that controls the Pennsylvania chocolate company. Hershey would struggle to buy Cadbury on its own but could do so with help from Ferrero, while insuring The Hershey Trust doesn't lose overall control of the group.

-By Sabrina Cohen, Dow Jones Newswires, +39 02 5821 9906; sabrina.cohen@dowjones.com

(Gilles Castonguay contributed to this article.)
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