Sainsbury's Chief Executive Sir Peter Davis said: "Over the past year we have looked at the possibility of combining with Safewayin order to offer more customers greater choice and a superior food propositionthroughout the United Kingdom. Safeway's recent decision to relinquish itsindependence offers us a unique opportunity to acquire a large number of stores,which would enhance our strategic transformation."

Even if the Monopolies and Mergers Commission required Sainsbury's to sell off 90 of Safeway's 381 stores, the deal would still return Sainsburys to the number one position in the UK food retail market, a position it relinquished to Tesco about ten years ago.

But analysis believe that the next move could well be a bid from Asda Wal-Mart, currently the UK's number three food retailer. When it entered the UK market four years ago the Bentonville, Arkansas-based retailer said its intention was to be the dominant player in every market it served. A bid for Safeway would allow it to achieve that ambition in the UK, and would face no more regulatory hurdles than the Sainsbury's bid.

Ultimately, the decision will rest with the UK government. It has long maintained that competition in the food market is central to its anti-inflation strategy. The Morrisons bid will leave the market with four roughly equal-sized players, but a Sainsbury's or Asda Wal-mart bid would effectively carve the UK market up into three.