A report in The Times newspaper claims that Asda has offered Safeway almost £2 billion for just 70 of its stores - an offer which could prove far too tempting to refuse.
Morrisons original bid for the whole of Safeway (some 479 stores) was £2.9 billion, and the company had been expected to at least match that figure in a new offer next week.
Asda, along with rivals Tesco and Sainsbury, had its counter bid for Safeway rejected by the Competition Commission (CC) earlier this year, and has signed an undertaking not to bid for the whole of Safeway.
But along with the other unsuccessful bidders, it will be allowed to pick up stores on a piecemeal basis, starting with the 53 outlets which Morrisons is obliged to sell in order to proceed with the takeover.
The report did not say whether the 70 stores sought by Asda included all - or indeed any - of the 53 already up for sale, but in any case the bid would almost certainly be subject to further investigation by the CC, postponing any takeover until January at the earliest, a full year after Morrisons' initial bid.
Safeway's board recommended the initial offer from Morrisons, but has also stressed that it would continue to seek the best value for it shareholders - including, if necessary, a management buyout.
So Asda's bid - if it is forthcoming - is likely to be taken very seriously by Safeway's management, even if it could spark off a process whereby the company is sold off piecemeal to the other supermarket groups. For if Asda's move gets regulatory approval, the likelihood would be that Tesco and Sainsbury would both consider similar acquisitions - although they might consider the price tag a bit steep.
For Asda to be willing to pay so much for a relatively small number of stores reflects the difficulties faced by Britain's leading retailers when it comes to expanding their businesses. Regulations on new store developments, particularly with regard to the top three or four players, are extremely tough, and expansion through acquisition is the only real way to grow the business in geographical terms.
But the move also shows Asda's confidence in its own business model, since the company would have to generate far greater sales per outlet from the Safeway stores than their previous owner in order to recoup the cost. Asda's owner Wal-Mart has deep pockets, and can certainly afford to pay what is probably far more than the current value of the stores, but it will nonetheless need to see a rapid return on its investment.
It will also be interesting to see what Morrisons proposes in the light of another rival bid. It will certainly not be willing to pay over the odds for Safeway, given the huge task it still faces in overhauling the business and imposing its own business model, and so a bidding war looks highly unlikely, especially since it is safe in the knowledge that Asda cannot bid for more than a relatively small number stores.
But will Morrisons be happy to let Asda take its pick of Safeway's stores and then mop up the rest afterwards? Possibly, depending on which stores Asda is interested in, and especially if the 70 includes the 53 already slated for sale. Morrisons would still be left with a sizeable estate with which to rival Asda and the other market leaders, but with Asda prepared to pay so much for just a handful of stores, the worry must be that Safeway would demand a far higher price for its remaining business - pricing Morrisons out of the market.
Asda and Safeway have declined to comment on the press reports, but the likelihood is that the UK retail sector will continue to hit the headlines well into 2004.