Nestlé raises doubts over Hershey in move to drive down offer price

The Chief executive of Nestlé has branded as fantasy the idea that US regulators would clear a takeover of Hershey Foods by the Swiss food giant in a move widely interpreted as a ploy to drive down the price of the iconic chocolate company.

Analysts said Nestlé remained the front runner to buy Hershey, put up for sale last month by the trust that controls it, despite comments by Peter Brabeck-Letmathe conceding that US anti-trust authorities would balk at the deal. Kraft Foods, owned by the tobacco group Philip Morris, is also interested.

Mr Brabeck-Letmathe also sought to dampen reports that Nestlé had made an $11.5bn (£7.4bn) offer for Hershey, although a spokesman for the Swiss group later added: "Suddenly the market leader in a given country is being talked about as potentially for sale, how could we not take an interest?"

The acquisition of the maker of Hershey's Kisses and Reese's Peanut Butter Cups would give Nestlé a 55 per cent share of the US chocolate market, forcing it to divest some brands. Cadbury Schweppes, which is also exploring an offer for Hershey, would be ideally poised to step into any secondary auction because it licenses brands totalling 16 per cent of Hershey's sales to the US company. These include Crème Eggs, Almond Joy and Mounds.

Speculation has raged about whether a takeover of Hershey by Nestlé fits its strategy. Recent deals, such as last year's $10bn takeover of the US pet food company Ralston Purina, and its purchase of frozen snack food company Chef America, have sought to extend Nestlé's presence in markets growing faster than its core instant coffee and confectionery interests.

However, acquiring Hershey would enable Nestlé to leapfrog Mars and dominate chocolate sales in the US, which are growing at about 2 to 3 per cent a year against 1 to 2 per cent in Europe. The deal also would fulfil Nestlé's aim of being the number one or two player in each market it operates and reunite it with the US rights to Kit Kat – the world's best selling chocolate bar.

One analyst said: "It's not a brainless approach to [mergers & acquisitions]. Nestlé is building on a strategy it's had in place for 30 years and very much filling in jigsaw pieces around the world. It just so happens that Nestlé can afford $20bn of assets [in one year] without even burping."

Nestlé, which generates about $3bn to $4bn a year in free cash flow, has said it would be willing to cede its AAA credit rating if it made financial and strategic sense.