According to a report in the Financial Times, Morrisons' chairman Sir Ken Morrison is likely to make a firm offer for Safeway as early as possible - and almost certainly before the end of the year. The report suggests that informal talks between the two companies have in fact already begun.
Morrisons sparked off a major bidding battle for Safeway back in January with a £2.9 billion offer for the chain. This was followed by expressions of interest from Tesco, Asda, Sainsbury and Trackdean, an investment company owned by retail entrepreneur Philip Green, leading to a lengthy investigation of the bids by the Competition Commission.
Of the four supermarket bids investigated, only Morrisons was given the all clear by the Commission - providing a number of stores are sold - while the other three groups were told that they would not be allowed to bid for Safeway because of significant competition concerns.
When Green decided not to go ahead with his bid, the way seemed clear for Morrisons to begin takeover talks once again, but the process was delayed once more by uncertainty over the interpretation of another ruling by the Competition Commission.
While it blocked the takeover of Safeway by Tesco, Asda and Sainsbury, the Commission did say that these firms would be allowed to bid for individual stores owned by Morrisons or Safeway - in particular the 53 outlets which the two companies must offload to meet the Commission's requirements.
The Office of Fair Trading has sought formal undertakings from these three companies that they will not bid for any more Safeway stores than the 53 already up for sale, and it was these negotiations which delayed Morrisons' bid even further. But the OFT said yesterday that it had completed its negotiations with Tesco, Asda and Safeway, finally clearing the way for Morrisons' bid.
The Yorkshire-based store group has 21 days to make a new offer for Safeway, but the FT said that it was unlikely to wait that long. The main question now is whether Morrisons will match its earlier bid - despite Safeway's worsening market position since January - or seek to get the company 'on the cheap' in the knowledge that rival bids have all been blocked.
The likelihood is that the new offer for Safeway will be around the same as the initial bid price, for any number of reasons.
With Safeway far larger than Morrisons, integrating the company's stores into Morrisons' business will be hard enough with the goodwill of Safeway's management, let alone without it, so getting off on the wrong foot by making a lower offer would not be a smart move.
Furthermore, Safeway's current management team has repeatedly said that it would consider an MBO of the company if it felt that other offers undervalued the company.
But the enforced sale of 53 stores means that Morrisons will be getting fewer stores for its money (although this also means lower integration and refit costs), which could prompt the group to make a lower offer.