As the fourth largest supermarket chain, Safeway has been struggling to compete with the ascendance of Asda and does not have the nation-wide presence to square up to its other much larger rivals Tesco and Sainsbury's.

Morrisons, a second-generation family firm, has been pressuring Safeway from its number five spot in the supermarket league and a takeover would make geographical sense: Safeway strong is in Scotland and southern England and Morrisons established in northern and central England.

Any merger deal would have to be approved by shareholders and the competition authorities. But if it does go ahead, there are likely to be job losses at head-office rather than store level and both Safeway ceo Carlos Criado-Pérez and chairman David Webster would be expected by analysts to go.

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