Can Anyone Swallow Cadbury Debt?

Bloomberg News reports that Hershey and Italy's Ferrero are both "evaluating their options" for whether and how much to bid for Cadbury, the British confectioner for which Kraft Foods has made a hostile bid.

This is all happening "amid skepticism the companies will be able to outbid Kraft," according to Bloomberg. The Wall Street Journal, meanwhile, reported late yesterday that Hershey and Ferrero have been talking for weeks about making a possible joint bid to best Kraft's $17 billion offer.

That idea is also drawing skepticism.

The issue for all the circling companies—and this includes Kraft—is financing. Hershey is controlled by a charitable trust that owns 31 percent of the company, but 80 percent of its voting shares. Some analysts say that the trust would have to relinquish control and create a single class of stock in order to make a bid. That seems like a remote possibility, but Hershey, which for now is the manufacturer and distributor of Cadbury products in the United States, does not want to see Cadbury in the hands of a giant U.S. rival.

Ferrero is privately held, and so is freer to make strategic decisions. It likely could land the financing, but the debt load would be enormous and there are reports of dissent within the family over whether to go forward.

Kraft would not have trouble putting financing together, but Moody's Investors Service has issued a note warning that while the company's size and healthy cash flows would make it able to "tolerate higher leverage than most of its peers," there nevertheless are "limits."