updated 11/20/2009 7:16:23 PM ET 2009-11-21T00:16:23

Hershey Co. may make a $17 billion bid for UK candy company Cadbury PLC, topping the recent $16.5 billion hostile offer by Kraft Foods Inc., the Wall Street Journal reports Friday.

The bid wouldn't be ready for two weeks and the terms are in flux, the newspaper says people close to the matter have said.

But the people said the charitable trust that controls the company and has complicated Hershey's merger efforts in the past is now prodding CEO David West to beat Kraft's offer, the Journal reports.

The offer is expected to include at least $10 billion in cash from Hershey, plus $2 billion in new Hershey shares and another $3 billion to $5 billion in cash from investors in exchange for equity in Hershey.

Hershey adviser Byron Trott, a former Goldman Sachs banker known for his close relationships with billionaire Warren Buffett and other major investors, is courting new investors. Buffett, whose investment firm Berkshire Hathaway is the biggest shareholder in Kraft, called Kraft's original offer for Cadbury "pretty full."

The trust would sell about $1 billion worth of assets but hopes to structure the deal to maintain control of Hershey, according to the Journal, which says Hershey and the trust are working with two banks to raise the money: JPMorgan Chase and Bank of America Merrill Lynch.

Kraft has made clear that it, like Hershey, wants access to Cadbury's presence in developing markets such as Mexico and India. Its Nov. 9 offer includes 40 percent cash and the rest in stock.

Cadbury quickly dismissed it as too low, but Kraft has until December to present it directly to shareholders.

"We're the only offer on the table," Kraft spokesman Michael Mitchell told The Associated Press. And we're confident we're the best, most logical partner for Cadbury."

With roughly $9 billion lined up from lenders including Citgroup Inc., Deutsche Bank AG and HSBC Holdings PLC, Kraft could top a bid from Hershey.

Representatives for Hershey, the Hershey trust and Cadbury declined to comment Friday.

While the trust initially didn't think it would be able to put together a bid, it has found banks are willing to lend at higher levels in recent weeks for a combined Hershey-Cadbury, the paper said, and that would allow a successful bid to be constructed.

Some on the Hershey corporate board worry a deal could burden the company with too much debt, the paper said. And observers question whether trust board members will have the will to sign off on a deal.

Hershey shares may not hold value if the company proceeds with a bid. And further share price drops — as occurred after rumors spread in recent weeks that Hershey might bid — would eat into the value of any offer.

Hershey Chief Executive David West has been talking with Italian candy maker Ferrero Spa about a possible joint bid for Cadbury, the Journal reports, writing also that a person familiar with the matter said those negotiations have not advanced.

The Hershey Trust funds a boarding school for low-income children in Hershey, Pa. It has resisted large-scale deals before and its insistence on retaining control has complicated talks about acquiring Cadbury. But trust board members have decided Hershey must expand more outside the U.S. to keep growing and preserve funding for the school, those close to the matter said.

"It has decided it must be a consolidator before it is consolidated, which would risk its mission," said one person familiar with the trust's thinking, according to the Journal.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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