Could Cadbury clinch a Hershey kiss?

It looks like a winning recipe: altruistic British chocolate icon buys philanthropic US chocolate icon. A bid from Cadbury Schweppes for Hershey would, no doubt, be the stuff of dreams for the people of Hershey, the Pennsylvanian town established a century ago by America's greatest chocolate baron, Milton Hershey.

It would unite two companies founded by community-minded benefactors who equated profits with their workers' wellbeing. The Quaker heritage of social reform, justice and equality that John Cadbury enshrined in the British chocolate business in the 19th century would be revived through the takeover of a company where Mennonite principles of helping the needy still live on in the east coast American community of Hershey. And it would bring Cadbury Schweppes, brains behind some of Britain's best-loved chocolate bars such as Dairy Milk and Crunchie, control of America's self-designated chocolate capital, home to the legendary Hershey's Kisses and Reese's Peanut Butter Cups.

But before chocoholics and romantic idealists alike get too carried away, there is one big stumbling block. US chocolate icons do not come cheap. Hershey's, which was put up for sale last month by the charitable trust that controls it, is expected to fetch between $10bn (£6.6bn) and $12bn. And that, say analysts, probably puts it beyond the reach of Cadbury. The British company, which has been busy diversifying into faster growth markets than chocolate, lacks the firepower for an acquisition of this scale.

"It just wouldn't make sense strategically or financially. Cadbury doesn't have the wherewithal or the cost base in the US to allow them to make synergies to justify the price," Andrew Woods, consumer goods analyst at Bernstein, said.

The Milton Hershey School Trust has cited a wish to diversify its business interests as its main motivation for selling the Hershey Foods, so Cadbury would have to stage a massive rights issue to raise the cash for a deal as its paper would not be wanted. The markets are still riding roughshod over equity fund raisings, which would make Cadbury's case for justifying such an exercise near to impossible.

Inevitably, Hershey has caught the eye of rival food giants Nestlé and Kraft, which are both beavering away on due diligence to assess if they can make the necessary cost savings to justify the stiff asking price. Their centre-stage presence in the unfolding drama alone is enough to deter Cadbury, analysts add. Both have much deeper pockets than their smaller British rival and are not afraid to bid aggressively. Indeed, Nestlé is understood to have grabbed the gauntlet over the weekend with a hefty $11.5bn offer – although the Swiss food group has since pointed out that it looks at "a lot of transactions that in fact it does not progress with".

Kraft, owner of Toblerone and Milka chocolate, has yet to nail its colours to the mast but with the financial clout of its parent – the world's biggest tobacco group Philip Morris – behind it, the company is unlikely to allow itself to be outbid if it is serious. Plus Kraft has stated previously that one of its two strategic aims is growing its confectionery business (along with beverages).

In contrast, Nestlé is feverishly diversifying away from its core mature markets of instant coffee and chocolate into the more exciting worlds of pet food, ice cream and, most recently, frozen snack foods. If Nestlé were to proceed, the acquisition would invite contrasts with the Swiss group's takeover of Britain's Rowntree in the late Eighties. As with Hershey and Cadbury, the origins of the company behind Kit Kat and Rolo lay with an enlightened 19th century businessman.

Like John Cadbury, Joseph Rowntree was a Quaker, whose religious beliefs guided him towards establishing a working environment that embraced the notion of social justice for his employees. Where the Cadburys founded Bournville, home to the chocolate factory's workers, Joseph Rowntree founded the model village of New Earswick. Both men played key roles in transforming social and industrial society in Victorian Britain. As Quakers – one of many non-conformist groups founded in the 17th century in protest against the formation of the established Anglican Church – both men strove for an end to poverty and social deprivation. As alcohol was widely considered to be one of the causes of poverty and deprivation among the working classes, the Quakers involvement with the Temperance Movement goes some way to explain the attraction of selling cocoa and drinking chocolate. It provided the masses with an alternative to gin.

Despite protestations from Nestlé yesterday, that it had kept "the Rowntree spirit" alive since the takeover, the spokesman could offer the people of Hershey scant extra comfort that their cushioned lifestyles would be preserved if Hershey fell to a new owner. Little links the Swiss company today to Joseph Rowntree's philanthropy save for the existence of a library and theatre, created for the factory's employees.

It is concern for their worker's utopia, where the needy get free schooling, healthcare is free and housing is affordable, that has prompted an outcry from the townsfolk of Hershey about either likely suitor. They are wary of a bid from Philip Morris's Kraft, fearing the town's Hershey Kisses-shaped lamp-posts could be replaced with Marlboro tips. They are uneasy at being swallowed up by Nestlé, a group that has long fought to uphold its corporate image, tarnished by the controversy over its sales of baby milk in the Third World. Above all, the inhabitants of "the sweetest place on earth" shun the notion that their town life – where even the local hotel offers a spa treatment in a steaming bath of chocolate milk – could be turned upside down by the heavy hand of a profits-hungry global food giant.

Which is why locals and politicians have taken up arms against the Milton Hershey School Trust and its impending sale of America's biggest chocolate maker. The scene of the drama is set to switch from the boardroom to the courtroom early next month when the Orphans Court in Harrisburg, which holds jurisdiction over state-based trusts and estates, will decide whether to halt the sale. The move follows a filing from Pennsylvania's attorney general Mike Fisher, who cynical observers suggest has taken up Hershey's case as a precursor to launching his campaign to become state governor.

Sounds of resolve cracking from within the trustees camp have also begun to emerge, with reports suggesting some board members are having second thoughts about the auction. Their biggest worry is that potential bidders will use the growing storm of controversy to whittle down their offers. "It may lead to a deal not happening and the trust pulling the plug on the sale," said Bernstein's Mr Wood. If this happens, it could be left to Hershey's management, which opposes the sale, to buy up the trustees' stake in the business, leaving Milton Hershey's dream town to slumber in peace for a while longer.