Retail entrepreneur Philip Green has pulled out of the race to buy Britain's fourth biggest supermarket chain.

The decision by the billionaire owner of Bhs and Arcadia leaves Bradford-based grocer Morrisons with a clear run to acquire rival Safeway.

A Competition Commission inquiry last month excluded larger rivals Tesco, Asda and J Sainsbury from the bid race.

Morrisons is expected to announce a new formal bid in the next few weeks. Its original offer - worth �2.9bn at the time - was 1.32 Morrisons shares for each Safeway share but that lapsed after Safeway decided to consider other suitors.

A bid from Mr Green had been exempted from the competition inquiry because he has no interests in the grocery sector.

Announcing his withdrawal, he said his bid team had undertaken "detailed analysis" of the Safeway business and held discussions with the Office of Fair Trading over the details of the Competition Commission inquiry.

Frenzied activity

In a statement from his bid vehicle Trackdean Investments, he said: "Following advice from its professional advisers, Trackdean has now decided not to proceed with an offer for Safeway."

The owner of High Street stores including Top Shop, Dorothy Perkins and Bhs had in January expressed an interest in buying Safeway.

He stepped in during a frenzied period of activity in the supermarket sector after Morrisons' �2.9bn offer for Safeway's 479 stores.

A spokesman for Safeway said: "We have noted that Philip Green has decided not to issue an offer."

Other expressions of interest followed the Morrisons offer.

But Trade and Industry Secretary Patricia Hewitt agreed with the competition watchdog's view that a takeover by any of the Big Three retailers would "operate against the public interest at both a local and national level".

Profit warning

That ruling preventing Tesco, Sainsbury's and Asda from acquiring any Safeway stores in the near future may have made a bid less attractive for Mr Green, analysts say.

Henk Potts, of Barclays Stockbrokers, said: "It's likely he would have wanted to reduce some of the cost of taking over Safeway by selling off the unwanted stores to the likes of Tesco.

"The Competition Commission has effectively stopped him doing that, so taking away some of the economic benefit of the deal."

On Wednesday Safeway warned that its half-year earnings were set to slip.

It said underlying pre-tax profits would be around �173m for the first-half of 2003, down from �187m a year earlier.