The Office of Fair Trading has reportedly warned Delta Two that any possible deal for Sainsbury's must not affect the retailer's competitiveness.

OFT officials have contacted Paul Taylor, who manages Delta Two, to warn that a highly leveraged bid could weaken Sainsbury's and hit competition in the grocery sector, according to reports in the Observer.

The discussions between Taylor and the OFT were informal, as Delta Two has not officially notified their intention to make a bid, the reports added.

Sainsbury's and Delta Two will meet on Wednesday to discuss the bid, with Sainsbury's expected to urge Delta Two to reduce the level of debt in its £10.6bn proposal.