Setback for Cadbury after Hershey caves in to pressure to abandon sale

The charitable trust that controls Hershey Foods has caved in to intense local pressure from residents in the "Sweetest Place on Earth" and cancelled the sale of the iconic US chocolate group, dashing the hopes of bidders such as Nestlé and Cadbury Schweppes of dominating the lucrative American confectionery market.

The move, which came late on Tuesday night, followed a fraught two-month bidding process that culminated in two court hearings, as local politicians joined the residents' battle to prevent the Hershey Trust Company from exercising its right to put the chocolate maker up for sale. Analysts had valued the maker of Hershey's Kisses and Reese's Peanut Butter Cups at between $10bn (£6.5bn) and $12bn.

The decision to abandon the sale process came as the trust, which controls 77 per cent of Hershey Foods' voting rights, revealed that it had received just two bids for Hershey. One was from the chewing gum group Wm Wrigley Jr, which analysts had previously discarded as a rank outsider. The other, as anticipated, was a joint bid from the Swiss food behemoth Nestlé and Cadbury Schweppes.

While the trust's move safeguards the heritage of Hershey, the town created by Milton Hershey at the end of the 19th century which is home to the 6,200 employed by Hershey Foods, analysts said it left the company's future wide open. In July, when the trust, which was set up nearly a century ago to look after the interests of the Milton Hershey School, announced it was selling its stake in the chocolate company, it cited a need to diversify its interests.

Yesterday, Robert Vowler, the trust's president and chief executive, attempted to backtrack from what appeared to be a resounding defeat for his plans, and said the sale was only ever one of a number of options the board was considering. He said the trust would continue to explore those options, which now boil down to accepting an earlier offer from Hershey Foods to buy up the trust's stake in the business. Mr Vowler also pledged not to explore a sale again for the "indefinite future", adding that it was "no longer an option".

Mr Vowler said Wrigley's $12.5bn bid had been rejected because it had been a combination of cash and stock. "[This] complicated matters [and] perhaps didn't solve the diversification issue." About 58 per cent of the trust's $5.4bn assets are in Hershey stock. The trust added that Nestlé's joint offer with Cadbury, which valued the company at about $10.2bn, had been rejected as too low.

Local unease at the thought of its heritage being gobbled up by an overseas bidder had prompted Pennsylvania's attorney general, Mike Fisher, to wade into the controversy on behalf of the town's residents. He managed to obtain a court injunction to stop the sale although the trust had appealed.

Commenting on the decision to abandon the sale, Mr Vowler said the vote, which went 10 to seven in favour of not progressing, had been "difficult, heartfelt and emotional". He added: "At the end of the day ... we weren't adequately assured that community needs would be taken care of."

With Hershey off the market – at least temporarily – analysts said attention would refocus on Pfizer's $4bn sale of Adams, its chewing gum arm. Cadbury is expected to be one of the interested parties, they added.