SWEET DEAL IN THE OFFING? NESTLE, CADBURY EYE HERSHEY.

Byline: Evan Pondel Staff Writer

Nestle SA and Cadbury Schweppes could make a joint bid for Hershey Food Corp. if a Pennsylvania judge hearing arguments today allows the giant chocolatier to be sold, analysts say.

In recent weeks, Wall Street has bandied about several prospective suitors for the Hershey, Pa.-based chocolate company. And while no time line has been set for potential Hershey bids, Nestle and Cadbury are said to be discussing a deal that would enable the Swiss-based food group to buy the company and sell certain brands to Cadbury.

Nestle's size has raised concern that if it swallows Hershey; its chocolate footprint would be too large in the United States. But, selling segments of its business to Cadbury would probably assuage antitrust woes.

``It's obviously hard to speculate what will happen, but a Nestle-Cadbury deal would probably be more appealing to antitrust regulators,'' said Ann Gurkin, analyst with Davenport & Co. ``Hopefully there's less political football this week and a decision regarding a time line will be made soon.''

The possible sale of Hershey has drawn criticism from the local community. Hershey's tradition has been entrenched in the bedrock of central Pennsylvania for 108 years. Though public outcry against Hershey's potential sale doesn't necessarily resonate within Nestle's Glendale conference room, it could sway legislators' opinion of the deal.

Richard Chernicoff, a mergers and acquisitions attorney with Brobeck Los Angeles, said members of every Federal Trade Commission and Department of Justice are appointed by ``political folks.'' For that reason, ``if the public isn't happy with the Hershey deal, legislators will probably hear about it and then it could get back to the DOJ and so on,'' Chernicoff said.

So far, Hershey has remained quiet about potential bidders. Chernicoff said Hershey's response isn't a surprise given the highly politicized issues surrounding the transaction.

Among other potential Hershey suitors: Philip Morris' Kraft Foods. Kraft may have a little more moxie in terms of its ability to woo Hershey because its market share is less threatening, according to George Askew, analyst with Legg Mason.

``But the real wild card is what the Pennsylvania court system thinks,'' Askew said.

Cadbury Schweppes has an established candy operation with its ``Creme Eggs'' - already licensed to Hershey Foods - among the London-based company's most notable brands. Cadbury Schweppes is also the world's No. 3 soft-drink firm after The Coca-Cola Company and PepsiCo.

Still, some analysts remain skittish about any mention of Nestle teaming up with Cadbury. William Leach, analyst with Banc of America Securities, said he didn't feel comfortable commenting about such a deal. ``It's just too early to determine what Hershey's fate might be,'' he said. ``But the process of the acquisition could certainly be delayed.''

Though a bid for Hershey may never come to fruition, analysts say a deal would most likely bode well for investors. Askew said he's confident that a company like Nestle, Kraft or Cadbury would run Hershey's business in the best interest of the investment community.

However, Hershey's 14,000 employees may not welcome a change in management. Factory closures and consolidation at the corporate level are possible outcomes, said Bob Goldin, executive vice president of Chicago-based food-industry consultants Technomic Inc.

``Layoffs are always a possibility when it comes to acquisitions,'' Goldin said. ``But the Hershey brand is important and I doubt any suitor would want to risk losing that dominance by saying goodbye to key people.''

About 77 percent of Hershey is owned by The Milton Hershey School Trust. Originally created to support an orphanage founded by Milton Hershey, now the trust is attempting to sell the nation's largest candy maker.

Gurkin said the trust company's ability to sell Hershey will ultimately depend on the Commonwealth Court's decision.

Reports said people close to the case anticipate a ruling in favor of Hershey's sale.

``As for Nestle and Cadbury - that all depends on how the deal is structured after the court makes its decision,'' Gurkin said.

Hershey shares rose 57 cents to close at $74.10, Cadbury added 6 cents to close at $29.45 and Kraft gained 26 cents to close at $39.14 Tuesday.