HERSHEY, Penn., - In a company town where the street lamps are shaped like chocolate Kisses and orphans are cared for with corporate largesse, the prospect that America's biggest chocolate maker may merge with a foreign entity has unnerved some people.

Disclosure that the Hershey Co and Italian confectioner Ferrero may bid on Britain's Cadbury is making waves among some employees in Hershey, Pennsylvania who fear for their jobs.

While Hershey gave no details about what kind of bid or deal it is considering, it would have to contend with Kraft Foods Inc's $16.7 billion hostile offer for Cadbury.

Some long-time Hershey employees wonder if an international alliance would dilute the paternalism that has characterized the company's role here for 100 years.

Bob Reddinger, 53, a cocoa paste processor who has worked at Hershey for 33 years, said he is worried about the possibility of job losses among the 12,000-strong work force, and a change to the company's role in the town if there is a deal with Cadbury.

I'm somewhat concerned about the impact, he said in an interview outside the Hershey factory after his shift ended. It's a community kind of company.

The company's pervasive influence on the central Pennsylvania town is shown by the street lamps shaped like Hershey's kisses, lining Chocolate Avenue near the intersection with Cocoa Avenue. The town itself was established by Hershey Co founder Milton Hershey for its employees.

The sweet smell of chocolate fills the air around the factory, and even the tiles in the men's room of the local museum are chocolate-colored.

The company was founded by Milton Hershey who in 1909 used his $60 million fortune to set up an orphanage that has now become the 1,600-student Milton Hershey School, a residential establishment where needy children from across the United States are educated free of charge.

The school is run by an eight-member trust that also appoints the majority of the Hershey Co's board of directors, and controls almost 80 percent of its voting shares. Three of the trust's board members are also on the board of the company.

SECRECY OF THE TRUST

The biggest share of the trust's endowment, valued at as much as $7 billion, consists of Hershey Co stock, so the trust pays close attention to the company's value, said Tim Reeves, a spokesman for the trust.

The trust doesn't run the company but all matters related to the long-term prosperity of the company are of keen interest to the trust, Reeves said.

Neither the company nor the trust is commenting on the takeover talk.

The trust is not making any comment, and I don't see any indications of changes in that, Reeves said. This is a volatile environment and they are not going to do anything to contribute to that volatility.

In 2007, the trust forced an overhaul of Hershey's board of directors after it became frustrated with the company's lackluster results.

Hershey's results have shown some improvement since and the company reported third-quarter 2009 net earnings rose to $162 million, or 71 cents a share, from $124.5 million, or 54 cents a share, a year earlier.

Beth Auman, 44, a 10-year Hershey employee who wraps the company's famous foiled-wrapped Kisses, welcomed the talk of a corporate merger. She said a recent renovation in the factory suggests to her the company may be getting ready for expansion.

Susan Bross, 50, who has worked at Hershey for 29 years, welcomed the possibility of becoming part of a larger organization, and praised Hershey as an employer.

It's a very good company to work for, said Bross. They have great benefits, and I'm proud to work here.

(Reporting by Jon Hurdle; Editing by Michele Gershberg and Richard Chang)

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