The bid battle for British supermarket group Safeway looks set to be won by Wm Morrison Supermarkets after a government competition ruling banned its big rivals from bidding and issued tight guidelines restricting moves by financial bidders.

The long-awaited outcome announced by the British Department of Trade and Industry yesterday has backed the findings of the Competition Commission. The commission decided that the Morrison bid - which sparked the battle for Safeway in January - could proceed if the group agreed to 53 store disposals.

It prohibited potential bids from Tesco, Asda/Wal-Mart and J Sainsbury and also said that the big three supermarket operators could not buy any Safeway stores other than the 53 identified as part of the Morrison bid.

This part of the ruling means that any financial bidder - including retail entrepreneur Mr Philip Green, who has declared an interest in bidding - would have to promise to run Safeway as a going concern and could only sell those stores. Analysts said this would make the chances of a financial bid slim.

Morrison will now start negotiations with the Office of Fair Trading regarding which stores have to be sold.

The ruling is a blow for Asda/ Wal-Mart and Sainsbury - both keen to add scale to compete with Tesco, the market leader.

The all-paper bid was announced as a £2.9 billion (€4.2 billion) deal, but Morrison saw its value drop as its shares fell sharply on fears of the integration risk ahead. The shares have since recovered and at the current Morrison share price of 211¾p, an identical bid would value Safeway at about £3 billion. - (Financial Times Service)