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Luxury retailer Saks Inc. has entered into an agreement to sell itself with Canada’s private retailer Hudson’s Bay for $2.9 billion, including debt.

Hudson’s Bay, parent of apparel chains like Lord & Taylor’s in U.S. and Hudson’s Bay in Canada will pay $16 per share to secure the transaction, which is expected to close by the end of 2013.

Saks will operate independently with its headquarters remaining in New York. Also, its marketing, merchandising and store operations teams will remain in place even after the deal closes.

The acquisition will bring premium brands like Saks Fifth Avenue and Hudson’s Bay-owned Lord & Taylor and the mid-tier brand, Hudson’s Bay, under one roof. This will give the combined entity a lead in the North American apparel retail sector with a broad spectrum of consumers across luxury, mid-tier and outlet retail sectors.

Moreover, it will add several real estate facilities to Toronto-based Hudson’s as most of Saks store locations will be converted into Lord & Taylor’s. In addition, Hudson’s will build seven more Saks Fifth Avenue stores and up to 25 Saks’ Off 5th shops in Canada. 

The combined entity will form a coast-to-coast North American retail portfolio with 320 stores, including 179 full-line department stores, 72 outlet stores and 69 home stores in prime retail locations throughout the U.S. and Canada, along with three e-commerce sites.

The deal will provide an easy access for Saks to the Canadian markets through Hudson’s already established market in the region. This is particularly significant as Saks’ close competitors, Nordstrom Inc. (JWN - Analyst Report) and Target Corporation (TGT - Analyst Report), are planning to expand their presence in Canada in the current fiscal year.

As of the end of its last quarter, Saks operated 42 Saks Fifth Avenue stores and 66 outlet stores. Although Saks has been reporting lower-than-expected sales per square feet, it has focused on executing its core merchandising, service and marketing strategies, through various operating initiatives.

Saks has taken initiatives to strengthen its omni-channel approach to the business, as it is quickly gaining popularity. Omni-channel retailing enables multiple channels like mobile internet devices, computers, television, etc. to reach out to customers

The luxury retailer has reportedly attracted two other bidders recently – the Real estate investment firm, Starwood Capital Group LLC, and a Middle Eastern sovereign wealth fund, most likely from Qatar.

Saks currently holds a Zacks Rank #3 (Hold). Another stock in the retail and wholesale sector worth considering is The Gap Inc. (GPS - Analyst Report), carrying a Zacks Rank #1 (Strong Buy).

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