UPDATE 2-Ferrero link seen viable defence for Cadbury v Kraft

* Source says Cadbury has not heard from Ferrero

* Analyst: Ferrero credible alternative to raised Kraft bid

* Ferrero revenues $9 bln, similar to Cadbury's

* Cadbury shares little changed

(Adds Cadbury no comment, quotes, share price, background)

By Jo Winterbottom and Victoria Howley

MILAN/LONDON, Nov 17 (Reuters) - Britain's Cadbury (CBRY.L: 行情) may team up with Italian chocolatier Ferrero to see off a hostile bid from U.S. group Kraft, an Italian newspaper reported on Tuesday, a combination that one analyst said made sense.

Italian business daily Il Sole 24 Ore said family-owned Ferrero, which makes Nutella chocolate spread and Tic-Tac candy, could join financial investors and private equity players considered friendly to Cadbury for a possible alliance.

A person familiar with the situation said that Cadbury had so far not been contacted by Ferrero but would consider any attractive offer. Analysts and traders said that there was a possibility that such an alliance might emerge.

"Cadbury has heard nothing from Ferrero or people acting for it. Cadbury is not up for sale, but the company would give proper consideration to any offer that valued it properly and would be of interest to shareholders," the person said.

Ferrero and Cadbury (CBRY.L: 行情) both declined comment.

Cadbury's shares were little changed, up 0.4 percent at 784.5 pence by 1502 GMT compared with the current value of Kraft's cash and share offer at 726p and many analysts believe it may have to explore all options if it wants to extract a higher price from Kraft.

Nomura analyst Alex Smith said a Cadbury-Ferrero combination could prove a very credible alternative to a raised Kraft bid.

"We believe that if this scenario were proposed as a potential defence measure by Cadbury, the potential value the market might be prepared to award it would not be materially different to that of a revised Kraft offer (at 820p)," he said.

Another advantage for Cadbury shareholders is that they would continue to hold shares in a high-growth confectionery group -- with a potentially retained UK listing -- rather than being paid around 50 percent equity in a low-growth US-listed conglomerate, Smith added.

Last week, U.S. food group Kraft took its $16.2 billion offer for Cadbury to the British company's shareholders, refusing to sweeten its price. [ID:nL9380032].

"A Ferrero bid could emerge in due course," said one trader. Another said that the Italian company was too small to bid on its own and would have to team up.

HAZELNUTS AND RICH ITALIANS

Ferrero, which has annual sales of 6.2 billion euros ($9.3 billion), 18 factories and over 21,600 employees worldwide is best known for its Ferrero Rocher and Kinder chocolates, Nutella spread and Tic-Tac candy.