Nestlé leads the pack in controversial bidding war for American icon Hershey

Nestle appears to have taken an early lead in the race to gobble up Hershey but the sale of the iconic chocolate company faces major political and legal obstacles.

The highly acquisitive Swiss food and drinks giant is believed to have opened the bidding at $11.5bn. That price tag is likely to have put the business out the reach of the UK's Cadbury Schweppes.

A combined Nestlé-Hershey operation would control more than 50 per cent of the US chocolate market. The acquisition of Hershey would give Nestlé the US rights to Kit-Kat, the chocolate bar brand that it controls everywhere else in the world, although Nestlé contends that, in the event of a sale to another party, the Kit-Kat brand would revert to it anyway.

It is thought that Philip Morris's Kraft Foods is the other main trade buyers considering making offers for the US business. Hershey was put up for sale by the Milton Hershey School Trust, which controls the 108-year-old chocolate maker. The trust is looking to diversify its assets.

UBS Warburg, the investment bank is running the auction of the chocolate business and prospective buyers have been touring its base in Hershey, Pennsylvania.

US reports said Nestlé had made a preliminary bid towards the top end of estimates of Hershey's value. Cadbury would struggle to top $11.5bn, since it has a stock market value of just £9.6bn, or $14.6bn.

Cadbury is likely to be left with a choice over whether to bid for any brands Hershey's ultimate buyer would have to divest following a sale, or to concentrate more on a bid for the Adams confectionery business of Pfizer, which was put up for sale in June.

Rene Weber, analyst with Bank Vontobel, said: "It is clear as it can be only Nestlé and Kraft that are interested in Hershey. As from the aspect of financial strength, only these two have the chance."

The Swiss company however played down its interest. "Nestlé does not comment on market fantasies," said spokesman Francois-Xavier Perroud.

The sale of Hershey may not go ahead at all if a court challenge is successful. The Pennsylvania attorney general, Mike Fisher, last week asked a state judge to prevent the Milton Hershey School Trust from selling up.

Mr Fisher's opposition is matched by employees and small businesses in the town of Hershey. It is thought that the level of protest has led some of those on the board of the trust to have second thoughts about the sale. There are fears about large-scale job losses and the ruination of the company town if Hershey is bought by another chocolate-maker.

Hershey shares, which are traded in New York, jumped 3 per cent in early trading yesterday, valuing the company at $10.5bn.