Morrisons bid for Safeway was in doubt today after it was referred to the Competition Commission.
A spokesman for the Bradford supermarket chain - the only store group to have tabled a firm bid - said it was disappointed by the referral which was not expected.
It said the move meant its £2.6 billion share and cash offer had now lapsed and it was considering its next move.
Tesco, Asda and Sainsbury's bids are also set to be referred to the Competition Commission to see if any of their offers would not be in the best interests of the consumer.
Trade Secretary Patricia Hewitt announced the move after a review in the last month led by the Deputy Director General of Fair Trading. Only Bhs boss Philip Green has avoided having a referal.
Morrisons had been expected by analysts to avoid an investigation because most of its stores lie in areas not overlapping with Safeway. In the cases of Tesco, Sainsbury's and Asda, Mrs Hewitt said she had accepted advice that there was a significant prospect that the proposed mergers could result in a "substantial lessening of competition".
There were also reasonable grounds to believe there could be the same outcome from a tie-up involving Safeway and Morrisons, Mrs Hewitt added.
Morrisons were clearly disappointed by the announcement. A statement from its Bradford HQ said: "Morrisons notes today's announcement by the Secretary of State referring Morrisons' offer for Safeway to the Competition Commission. In particular, Morrisons notes that the Deputy Director General (DDG) concluded that Safeway, under Morrisons' ownership, seemed unlikely to raise additional competition concerns over and above the effects at local level.
"However, the DDG concluded that the acquisition of Safeway would raise additional competition concerns at a national level for other food retailers.
"Morrisons is disappointed that the OFT found difficulty in identifying and addressing the local areas of overlap between Morrisons and Safeway. Morrisons had indicated to the OFT its willingness to undertake store divestments where required to address any local competition concerns.
"In accordance with its terms, the offer will now lapse. Morrisons will be reviewing its options with regard to Safeway."
Proposals from the quartet on how they can alleviate competition concerns through store disposals should now be a key factor in the outcome.
Morrisons chief executive Bob Stott said only on Monday how the firm was still confident the firm was best placed to takeover Safeway. As he revealed the group's pre-tax profits were up 13.8 per cent to £276.6 million for the year, Mr Stott said he thought they could avoid the rigours - and red-tape - of a Competition Commission review.
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