Analysis
By Jeff Randall BBC business editor

First Morrisons makes a takeover bid with an offer worth about �2.5bn, then Sainsbury's tops it with one for more than �3bn.

Morrisons could still bag Safeway

Before the end of this week, it is likely that Asda will enter the fray.

And the good news may not end there.

City insiders tell me that at least one other group is planning an offer, probably a bidder that simply wants to break up Safeway and sell it off in chunks to the various supermarket chains looking for a piece of the action.

Wallflower no more

For a company that was decidedly unloved by the City last year, Safeway suddenly finds itself with more suitors than Debutante of the Year.

Its shares have jumped sharply and may have even further to go.

At first glance, Sainsbury's' putative cash-and-shares offer, which will be worth more than �3bn, according to its chief executive Sir Peter Davis, looks to have blown Morrisons lower all-share bid out of the water.

The risk premium

But there are issues other than money at stake here.

Safeway's shareholders may prefer a lower offer from Morrisons because it is unlikely to run into monopoly problems

A combined Sainsbury's (market share: 18%) and Safeway (11%) would crash through the 25% that government tends to regard as the limit for fair competition.

That's why Sir Peter has already offered to dispose of about 90 of Safeway's 480 stores should he be successful.

Even so, Sainsbury's' bid will still be looked at by the competition authorities, who may decide that a thorough inquiry is called for.

If that is the case, Safeway's shareholders may prefer to take a lower offer from Morrisons (market share: 5%), because its bid is extremely unlikely to run into monopoly problems.

The stock market's reaction to the bid battle gives a clear indication that there is a risk attached to Sainsbury's' offer.

At 295p, Safeway's shares are below Sainsbury's' indicative 300p-plus bid. That tells us that investors are not fully convinced Sainsbury's will prevail.

Waiting for Wal-Mart

Wal-Mart's boss has to empty the tills on Friday night, pop the cash in a bag, and - hey presto! - he's paid for Safeway

All this could change, of course, if Asda jumps in with a blockbusting all-cash offer.

Asda would also face scrutiny from the competition authorities, even though its market share (14%) is smaller than Sainsbury's'.

But Asda would have no problem funding any deal.

Asda is owned by Wal-Mart, the world's biggest retailer.

From its unlikely base in Bentonville, Arkansas, Wal-Mart has built itself into a corporate leviathan by focusing relentlessly on price and value.

It has literally wiped out competition by driving down costs.

Shopping with a difference

Wal-Mart's average weekly takings are about �3.5bn; and that's all would be required to buy Safeway.

Sir Peter Davis has been upfront about his interest in Safeway

Lee Scott, Wal-Mart's, chief executive, simply has to empty his tills on Friday night, pop the cash in a bag, and - hey presto! - he's paid for Safeway.

For shoppers, meanwhile, there would be a very noticeable difference between a Morrisons-owned Safeway and one controlled by Sainsbury's.

Morrisons' genesis is market stalls in its native Yorkshire, and its stores still have a flavour of that.

It's a company that appeals primarily to those in lower income groups who tend to be very price conscious.

Sainsbury's has a much more affluent customer base who, though enjoying a bargain, often care more about "food fashion" (hence the trendy TV advertisements with Jamie Oliver).

In that sense Sainsbury's has much more in common with Safeway than Morrisons does.

The man who faces the music

But Morrisons provides a better geographical fit. Safeway is strong in Scotland and the south of England, whereas Morrisons' heartland is the north of England.

Finally, hats off to Sir Peter Davis for immediately facing the media and answering all the difficult questions put to him, not just by the BBC but other broadcasters.

All too often, business folk run scared of public accountability when the going gets tough.

They trot out the old claptrap that their advisers have warned them against giving interviews. This is invariably a disingenuous way of dodging scrutiny.

Sir Peter faced the music on TV, radio and with the press, something I'm sure his customers and shareholders will appreciate.