This development would strengthen Kraft's takeover chances for Cadbury. It is understood that the company is no longer talking to US' Hershey, its potential partner, about making a joint offer to rival Kraft's bid of £10.5bn for the UK confectioner.
The development has weakened Hershey's attempt to make a rival bid offer to swing the Cadbury takeover its way.
Ferrero is understood to have backed out from competing with Kraft to attempt a Cadbury takeover because it will involve a huge amount of debt that the family-owned company is not comfortable with.
The Takeover Panel's deadline for submitting counter-offers to the Kraft bid is by the end of this month.
Media reports about Ferrero losing interest in the bid saw Cadbury shares slip down 4p to 777p.