American banks JP Morgan and Bank of America are ready to lend Hershey more than $7bn (£4bn) to help it bankroll a bid for Cadbury that would challenge an offer for the UK chocolate maker from Kraft Foods.

City sources say Hershey is ready to offer $17bn, trumping Kraft's $16.2bn bid, which has fallen in value because the shares component has been hit by a fall in its stock price.

Hershey, which is smaller than Cadbury and already has debts of around $1.5bn, would help to fund a bid by making disposals of some brands in Europe to Italy's Ferrero, a family-run company that has joined Hershey in telling the UK authorities it is considering a bid for the British confectioner. Another option is for the companies to make a joint bid.

The charitable trust that controls Hershey is pushing the firm's management to enter the bidding war on the grounds that further industry consolidation could make the company a bid target itself in two or three years' time. A number of US pension funds are ready to provide additional capital should Hershey decide to push ahead with a formal offer.

Hershey already has a close relationship with Cadbury, producing the UK company's chocolates under licence for distribution in the US. Cadbury chief executive Todd Stitzer believes a deal with Hershey would be a better cultural fit for the company than one with Kraft.

Source: The Guardian.co.uk