Tesco said William Low's shareholders should take no action until it had considered its response. It said an announcement would be made shortly. Most analysts expect Tesco to announce a higher counter-bid after the weekend.
James Millar, chairman of Wm Low, said it would contact both groups before making any recommendations to shareholders. The Wm Low board recommended the initial Tesco bid.
Wm Low's shares rose 44p to 324p on the news, while Sainsbury's rose 1p to 411p. Tesco's shares fell 7p to 233p because of the expectation that it would increase its offer.
David Sainsbury, chairman, said: 'I firmly believe that Sainsbury's is in the strongest position to realise value from the William Low stores.' If successful, the acquisition would increase Sainsbury's UK market share from 11.4 per cent to 12 per cent, and from 3 per cent to 10 per cent north of the border.
The logic of taking over William Low - building a Scottish presence without adding to surplus of store space - is identical for both groups. Nick Bubb, analyst at Morgan Stanley, said: 'Sainsbury has eliminated the risk that Tesco would get that space on the cheap.'
Sainsbury has four stores in Scotland already - one a Homebase - and two sites with planning permission and three with planning applications pending. It said there was little overlap between its northern English and Scottish stores and Wm Low's stores.
Both Sainsbury and Tesco would rationalise Wm Low's head office, with 320 staff. Tesco has distribution centres in Scotland and would be less likely to need Wm Low's three warehouses. Sainsbury said it would use some distribution facilities.
Sainsbury said it had no plans to close any of Wm Low's 57 stores, but had received approaches suggesting some smaller stores could be of interest to other operators. Michael Bourke, analyst at Panmure Gordon, said: 'Sainsbury's interest is in the 17 big stores.'
As well as offering pounds 210m for Wm Low's ordinary and preference shares, Sainsbury would take on debt of pounds 64m and spend pounds 40m on improvements. Its prices are 8 to 10 per cent below Wm Low's and it anticipates a big increase in sales at Wm Low if the bid succeeds.
Sainsbury is offering 305p for every ordinary share and 143p per convertible preference share. There is an alternative share offer.Reuse content