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    Hershey Injunction Contested

    Kraft Foods reportedly drops out as a suitor; Nestle still interested.

    HERSHEY, Pa. -- Lawyers for the charitable trust that controls Hershey Foods argued in a Pennsylvania court yesterday that a temporary injunction preventing the trust from selling the company should be overturned, contending that the injunction prevents the trustees from carrying out their obligation.

    The appeal by the Hershey Trust Company came less than a week after Judge Warren Morgan of the Dauphin County Orphans Court, which oversees charitable trust activities, decided to temporarily block the trust from selling Hershey after Pennsylvania's attorney general argued that a sale would cause "irreparable harm" to the company's hometown, The New York Times reported.

    The trust announced in July that it was considering selling its stake in Hershey Foods to diversify the trust's $5.9 billion base of assets to protect the financing for its main beneficiary, the Milton Hershey School, which educates and shelters nearly 1,300 students. The announcement brought protests from local officials and employees.

    The five-judge Commonwealth Court panel that listened to the trust's appeal yesterday did not indicate when it might rule. Most legal experts following the case suggested that the injunction would be overturned, the report said.

    Kraft Foods, a unit of Philip Morris, which had been interested in buying Hershey early on, appears to be backing away because of the asking price of more than $10 billion and the disputed process, executives close to that company said. Kraft's employees and advisers who had been actively working on a possible deal have been told to halt their work, the executives said. However, the executives said, Kraft could still be brought back to the table if the price were right.

    Hershey's other big suitor, Nestle, is struggling to find a way to overcome possible regulatory opposition, according to executives close to that company. Nestle has discussed teaming with Cadbury Schweppes to buy the company and split it up, but both companies are having misgivings about the difficulty of arranging a joint bid and the problems historically associated with such efforts, the executives said.

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