Wal-Mart May Be Planning a British Excursion

"It's a densely inhabited country," noted Mark Miller of William Blair. "Taking market share through same-store sales growth has its limitations. To have a serious shot at being the market leader long term, they have to be part of this process." Miller's company has no banking relationship with Wal-Mart.

Wal-Mart can be expected to fight for Safeway if only to prevent its competitors from acquiring it, analysts say. Were Morrison to gain hold of Safeway, for instance, Wal-Mart's Asda would drop from being the third-biggest British grocery chain to the fourth biggest.

"I think it was something that Wal-Mart couldn't avoid getting involved with," said Patrick McKeever of SunTrust Robinson Humphrey. "They wouldn't want to sit on the sidelines and watch as someone else scooped up Safeway."

(SunTrust Robinson Humphrey does not have any investment banking business with Wal-Mart.)

Although Wal-Mart is the odds-on favorite among British bettors to win Safeway, a deal is not certain. British consumer advocates have already come out in favor of Morrison's bid. Meanwhile, Wal-Mart has yet to even submit an offer.

Because of the large market share it would hold after a merger, Wal-Mart could be forced to sell off a significant number of its Safeway or Asda stores. Johnson, for instance, estimates that Wal-Mart may have to unload 50 to 100 of Safeway's 480 stores. Even if the company has to sell off that many stores, the deal would still be a boon to Safeway, Johnson said.

"It still would dramatically increase their distribution. It will be a nice little leg up," he said.

But Dreher disagreed, saying that selling a significant number of stores could be a deal killer.

"I still don't think it's a likely scenario. I don't think Wal-Mart's going to be able to hold on to enough of the Safeway chain that it makes sense to them," he said.