Morrisons-Safeway deal was timed to see off Wal-Mart

Concerns about a rival bid from US giant Wal-Mart brought to a head negotiations between William Morrison and Safeway on their agreed £5bn merger, announced last week.

A senior source within the negotiations told The Independent on Sunday he was convinced that Wal-Mart was ready to make an all-cash offer next week and had appointed Dresdner Kleinwort Wasserstein to advise on a deal. Neither Asda nor DKW would comment on the speculation.

"The big issue now is, have they missed the boat?" he said.

"It has been pretty clear for a number of months that Safeway was going to go somewhere – we want it to come to Morrisons," said Bob Stott, joint managing director of Morrisons. "In the last six weeks, we've been working very hard to convince ourselves that it was right for us."

ABN Amro, which is advising Morrisons, was convinced that by agreeing a deal with Safeway, it would deter Wal-Mart, which owns Asda in the UK, from making a bid. A Wal-Mart bid would have greater competition problems because the combined market shares of Asda and Safeway exceed 40 per cent in both Scotland and the north-east of England.

Both Morrisons and Safeway are convinced their agreed deal will not run into competition problems. "We think our deal will put pressure on the big three [Tesco, J Sainsbury and Asda], which is why we think the regulators will have no problem with it," said David Webster, chairman of Safeway.

City analysts have speculated that a rival bid could also come from Sainsbury's, which makes a trading statement tomorrow. It is believed to be trying to raise finance for a rival offer.

However, it is understood that Safeway's largest shareholder, Axa, which holds 12 per cent, has been advised by its analysts that a rival bid to the Morrisons offer is unlikely to succeed.