Prospects for the takeover of iconic US chocolate firm Hershey by Nestle suffered a further blow, as the head of the Swiss food giant warned a deal could falter over regulatory concerns.

It's fantasy to think that you would get regulatory approval in the US to combine 43% with 12%

Peter Brabeck Nestle

Nestle chief executive Peter Brabeck dismissed as "fantasy" the idea that US anti-trust regulators would wave through a takeover of Hershey, the Wall Street Journal Europe newspaper said.

The comment follows growing legal challenges in the US to any takeover of Hershey, one of the country's most famous firms, and owner of brands including Reese's Peanut Butter Cups and Hershey's kisses.

However, observers will question whether Nestle is attempting to play down its purchase plans in an effort to deflect attention towards rival bidders, thought likely to include US-owned Kraft and UK-based Cadbury Schweppes.

Mega merger

With top-ranking Hershey boasting 43% of the US chocolate market, and third-placed Nestle claiming 12%, Mr Brabeck said he could not believe that the Federal Trade Commission would back the deal.

"Can you imagine the FTC saying 'congratulations, beautiful'?" Mr Brabeck was quoted as saying.

"It's fantasy to think that you would get regulatory approval in the US to combine 43% with 12%."

Nestle has been seen as front runner to win the battle to take over Hershey, which is expected to fetch up to $12bn.

Legal hurdles

Hershey's future has come under increasing scrutiny since the Hershey Trust, a charitable foundation which controls 77% of voting shares in the firm, revealed plans to sell its stake in a bid to diversify its investment portfolio.

The firm has 125 years of history behind it

But Pennsylvania's attorney general, Mike Fisher, last week opened a legal battle to block the sale, claiming it would cause "irreparable damage" to the town of Hershey.

And an association for orphan ex-pupils of a school run by the trust, and set up by the firm's founder Milton Hershey, on Thursday filed a separate petition.

The petition seeks to have the alumni association appointed as the representative of the school's pupils, who are the Hershey Trust's sole beneficiaries.

"You can't have these proceedings hurtling forward without somebody speaking for the children, and right now nobody does," association president Ric Fouad said.

Trust spokesman Rick Kelley said: "This filing is completely predictable, given the behaviour of the alumni association over the last dozen years.

"They have looked for every opportunity to oppose the trust and oppose the school. We would expect to prevail in court."