Hershey's controlling Trust has belatedly accepted that, without doing a deal, the chocolate company faces slow decline. That removes one obstacle to Hershey challenging Kraft in the battle for Cadbury.

Hershey will struggle to acquire a company twice its size. Given limited geographical overlap, moreover, synergies would probably be less than Kraft’s targeted $625m a year. A mooted $17bn offer, including $10bn cash, would leave combined Hershey- Cadbury with debt of five times earnings before interest, tax, depreciation and amortisation. That would be leveraged buy-out-type levels, and might fall foul of Pennsylvania’s attorney-general, who must approve any Hershey deal. To maintain investment grade, Investec assumes the merged company’s net debt could not exceed 3.6 times combined ebitda plus estimated $500m annual synergies. Hershey could then probably pay only $7bn in cash – roughly 300p per Cadbury share, the same as in Kraft’s offer.

How much paper Hershey could add is complicated by its dual share structure. The Trust owns 61m B-shares, with 10 votes each, plus 12.8m single-vote common shares; other shareholders hold 154m common shares. That gives the Trust 80 per cent of votes, with a 32 per cent economic interest. Hershey could issue enough new common shares for a knockout Cadbury bid, without the Trust losing control. But shareholders would face intolerable dilution. Avoiding that probably requires unifying the shares, so threatening the Trust’s control. Alternatively, Hershey could bring in institutional or private equity investors in return for new equity. To avoid dilution problems again such investors would have to receive some form of preference equity – for which appetite remains unclear. A joint bid with Nestlé or Ferrero might be more achievable. But that too would have nasty complications.