Safeway to seek top price from Wm Morrison

Safeway will this week tell Sir Ken Morrison, the chairman of Wm Morrison, that he can not get away with a cut-price offer for the company now that it is the only supermarket chain with permission from the Competition Commission to bid for the group.

Philip Green, the retail entrepreneur behind Bhs and the Arcadia Group, is still looming large on the horizon and may rival Sir Ken for the Safeway chain. The Competition Commission report into the various bids for Safeway, which was published on Friday, appeared to curtail the scope of Mr Green's bid for Safeway, in restricting the number of Safeway stores that can be sold off. This lessens the ability for Mr Green to asset-strip the group, but he is yet to reveal his intentions.

"I am studying the report and will be meeting with my advisers this week to discuss its findings," Mr Green told The Independent yesterday.

After a lengthy investigation that ended on Friday with the Competition Commission barring all but Morrisons from proceeding with a bid, Sir Ken is left with an open court in which to revise the original £2.8bn offer he made in January. But while Sir Ken is the only bid in town, the Safeway board is not prepared to be held over a barrel on price.

Shareholders in the besieged retailer have made it clear that they want between 30p and 50p a share in cash as part of any takeover deal, and will be demanding around £500m as a cash sweetener.

They will argue to Sir Ken that he needs the Safeway executives on side if he is to make a success of turning his regional supermarket group into an enlarged, national retailing force. This will mean offering £500m in cash as part of a cash and share deal of around £3.5bn in order to secure a recommendation from the board.

Mr Green refused to comment yesterday on whether he may turn his interest to other supermarket chains such as J Sainsbury if he does not proceed with Safeway.

Any bidder for Sainsbury would need to secure the support of the Sainsbury family, which owns 38 per cent of the chain, and a spokeswoman yesterday said that none of the family members are "showing any signs of wanting to sell their stakes".

Sainsbury's, which has slipped behind Asda to become the UK's third biggest supermarket chain, is currently studying the Competition Commission's report with a view to reviving talks to buy the Somerfield supermarket group.

It had abandoned discussions with the company after a bid for 171 Somerfield stores was referred to the Competition Commission. But it is understood that its lawyers are hoping to learn from the Safeway report how it might restructure a deal that would avoid a competition referral.