By Bill Wilson BBC News Online business reporter

After 10 months of waiting it now appears an end is in sight to the Safeway takeover battle.

Billionaire Philip Green's announcement that he has pulled out of the race to buy the UK's fourth largest grocer appears to leave the way open for Bradford-based Morrisons.

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

However, there are still some hurdles to be overcome before Morrisons completes any deal, and it now has to be seen if the company matches its initial bid for Safeway made in January.

That offer - worth �2.9bn at the time - was made on the basis of 1.32 Morrisons shares for each Safeway share.

If Morrisons did look like they were going to get Safeway on the cheap then you might see a potential management bid Mark Hughes, Numis Securities

One analyst now warns that Morrisons would be wise to repeat that previous offer, or even sweeten it with a dollop of cash for Safeway shareholders as well.

Mark Hughes, an analyst at Numis Securities, told BBC News Online: "Morrisons might decide, following Philip Green's announcement, that they want to get Safeway on the cheap.

"However that would not be particularly wise. They are looking to buy a firm three times their own size, and will need the support and goodwill of the Safeway board and managers.

"In fact, Morrisons might want to put in a few million as a sweetener on top of the previous share offer.

"That is because, if the takeover goes ahead, Morrison has been told it will have to sell 53 stores, and there will be some value to be extracted during that process.

"The cash from those sales should really be returned to Safeway, in one way or another."

Regional buyers

Mr Hughes believes the stores for sale could go to a mixture of buyers.

Asda, Tesco and Sainsbury could be involved as well as Waitrose, Marks & Spencer, and some of the regional players, such as Booths in north-west England, he says.

Morrisons tabled its initial bid for Safeway in January 2003

Once negotiations with the Office of Fair Trading have been completed - likely to be within the next month - Morrisons will have 21 days to make a firm offer to Safeway shareholders.

Mr Hughes said: "At current prices, at the ratio of 1.32 Morrisons shares for every Safeway share, there is only a few pence difference, and that means the market sees them at a similar level.

"However, there is always a potential for others to take a look.

"People like US venture capital firm Kohlberg Kravis Roberts (KKR) took a look earlier this year, and considered making an offer.

"They always said they reserved the right to come back, and might take a look on a private equity basis."

Auction

Mr Hughes continued: "Again, if Morrisons did look like they were going to get Safeway on the cheap then you might see a potential management bid.

"The management has always said that was an option they would leave open, and they know what they think the business is worth.

By not making an offer Philip Green avoids compromising the good work he has done Mark Hughes, Numis Securities

"They have recently been reducing capital expenditure and the company has been cash generative in the past months."

Mr Green, the billionaire owner of Bhs and Arcadia, had not tabled a formal bid for Safeway.

He said he had dropped out of the running because it was unclear after talks with regulators whether he would be allowed to sell any of the group's stores.

Says Mr Hughes: "If there had been an auction for them he could have funded a large proportion of the initial acquisition from that.

"He could then have put clothing offers into the Safeway stores that remained.