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Nestle's Says Hershey Takeover Wouldn't Pass Antitrust Muster

Compounding the difficulties Hershey Foods Corp. HSY 2.91 % is having selling itself off, the chief executive of the most logical buyer, Nestle SA, said he doesn't think antitrust regulators would allow the European food giant to swallow its American rival whole.

The comments by Peter Brabeck are the latest blow to Hershey Foods. The trust that controls Hershey, the largest candy maker in the U.S., recently placed the company for sale, prompting a firestorm of local protest. The Pennsylvania attorney general is seeking a court order to stop any sale because of the "irreparable harm" it might cause the community of Hershey, Pa. And some members of the trust are wavering in their support for a sale, which could fetch $10 billion to $12 billion.

Still, Hershey marks a rare case of a public auction of an American icon. Not since Nabisco Holdings Corp. went on the block two years ago has a brand-name food company been in play. Just as Nabisco became a transforming deal for the food industry -- eventually being bought by the Kraft Foods unit of Philip Morris MO 0.38 % Cos. -- Hershey's sale could bring further consolidation of the snack-food business.

Nestlé has been widely considered by some investors as the leading candidate to buy Hershey because of the Swiss company's deep pockets and its ownership of the KitKat brand, which is licensed to Hershey in the U.S. Other possible bidders include Kraft and Britain's Cadbury Schweppes PLC.

In an interview, Mr. Brabeck acknowledged that acquiring Hershey would be consistent with Nestlé's strategy of being No. 1 or a strong No. 2 in its major product categories. However, he stressed that the Federal Trade Commission would probably block such a deal on antitrust grounds. Hershey holds about 43% of the U.S. chocolate market. Mars Inc. has about a 27% market share, and Nestlé is a distant third with 12%. Nestle's CEO also expressed reservations about prices being talked about for Hershey.

"Yes, [Hershey] would take me to an endgame situation" in the U.S. chocolate market, he said, "but I'm not sure whether the FTC will play, so it's a theoretical question. Hershey has 43%, we have 12%. Can you imagine the FTC saying, 'Congratulations! Beautiful!'? I...


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