Already seen as a long-shot bidder, Italian chocolate maker Ferrero's interest in Cadbury Plc has cooled as the hurdles of getting financing and finding suitable partners before the deadline becomes increasingly daunting, sources familiar with the situation said.

With Ferrero more firmly on the sidelines and other potential rival, Nestle , ruling itself out of the auction, Hershey Co has become more isolated in its ability to launch a bid to counter hostile suitor Kraft Foods Inc .

Hershey and Ferrero have considered a joint bid for Cadbury, sources previously told Reuters. Both Ferrero and Hershey are smaller than Cadbury and would need to raise significant financing to launch an offer.

Private equity firms, which have been seen as potential partners for both Ferrero and Hershey, are unlikely to come in so late in the day, sources said.

Blackstone Group LP and Kohlberg Kravis Roberts & Co were both recently cited by Italian daily Il Sole 24 Ore as having met Ferrero in the past few weeks to discuss Cadbury.

However, while Blackstone had very early stage discussions with Ferrero, neither they or KKR are in talks for Cadbury, sources told Reuters.

Blackstone, KKR and Hershey declined comment. Ferrero could not be reached for comment.

Private equity firms are more likely to seek to buy assets that could go on the block if a Hershey/Cadbury or Kraft/Cadbury deal is clinched, one source said.

Ferrero, the maker of Nutella spread and Tic-Tac sweets, said in November it was in the preliminary stages of evaluating options in respect of Cadbury.

Without private equity partners and an uncertain response from Hershey, Ferrero sits on the sidelines of the Cadbury saga, one source said.

Members of Cadbury board have been talking with counterparts at Hershey as expectations fade for a significantly higher bid from Kraft, sources have said.

Kraft has until January 19 to raise its offer.

Cadbury wants a higher bid than the $16.8 billion (10.5 billion pound) offer from Kraft, as well as a merger partner that would let the British chocolatier have some say in a combined company, sources familiar with the discussions told Reuters.

However, Cadbury's stock dipped below Kraft's bid price on Thursday for the first time since the offer emerged in September, as the prospects of a rival offer receded.

(Reporting by Jessica Hall)

(For more M&A news and our DealZone blog, go to http://www.reuters.com/investing/news/mergers)

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