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AFP - Italian chocolate maker Ferrero has dropped out of the race to buy British confectioner Cadbury after deciding to end talks for a joint bid with US counterpart Hershey, a source said on Wednesday.

"The conditions are no longer in place to proceed with Hershey," a financial sector source said, without giving further details.

Ferrero and its advising bank Mediobanca declined to comment.

Earlier the Wall Street Journal reported that the Italian group, which is owned by the Ferrero family and sells the Nutella hazelnut spread and Kinder chocolates, informed its bank advisers at Mediobanca about its decision on Tuesday,

The offer, which would have competed with a hostile bid from US giant Kraft Foods, was "not in line with the family's strategy," a source close to the issue told The Wall Street Journal.

Ferrero dropped out because it was unable to come to an agreement with Hershey on how to divide Cadbury's assets, Italian financial daily Il Sole 24 Ore reported.

A bid would have also required the two companies to go deeply into debt to match Kraft's offer, reports said.

Il Sole 24 Ore reported on Tuesday that Ferrero had lined up 1.5 billion euros (2.2 billion dollars) from Mediobanca and 3.0 billion euros from UniCredit to help finance the joint takeover.

Hershey planned to borrow another 7.0 billion dollars (4.8 billion euros) for the operation, Il Sole said.

Kraft's offer in cash and shares is worth 10.5 billion pounds (11.7 billion euros, 16.9 billion dollars) -- an offer which Cadbury dismissed again Tuesday as "derisory."