Saks.com and the Saks Fifth Avenue department store chain will continue operations.

Hudson’s Bay Co., the Toronto-based company that owns the web and retail store brands Hudson’s Bay and Lord & Taylor, is adding Saks Fifth Avenue to its portfolio of department store retail chains. Hudson’s Bay announced today it will acquire Saks Inc. in an all-cash transaction worth $2.9 billion.

Combined, the two retailers would surpass $1 billion in web sales based on 2012 sales, putting it just after Overstock.com Inc., which is No. 31 in Internet Retailer’s 2013 Top 500 Guide.

Hudson’s Bay says it plans to introduce new stores and an online presence in Canada for the Saks brand while continuing to operate U.S.-based Saks stores and Saks.com. Saks Direct, the e-commerce unit of Saks Inc., generated an estimated $899.0 million in sales online in 2012, up 20.1% from $748.6 million in 2011, according to the Top 500 Guide. In 2012, Hudson’s Bay generated $142.3 million in web sales primarily from e-commerce sites TheBay.com and LordandTaylor.com, up 69.8% from $83.8 million in 2011. Saks is No. 37 in the Top 500 Guide; Hudson’s Bay is No. 158.

The boards of both Hudson’s Bay and Saks have approved the deal and expect it to close by the end of the year, subject to shareholder and regulatory approval. Saks’ shareholders will get $16 per share. The deal includes a 40-day “go shop” period, during which Saks may solicit alternative proposals.

Canadians already shop Saks.com in Canadian currency. The companies say Canada is Saks.com’s largest international market. Saks.com offers international shipping to consumers in 101 countries.

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Hudson’s Bay says Saks will operate separately under the Hudson’s Bay umbrella and keep its headquarters in New York. Saks currently operates 41 Saks Fifth Avenue stores and 67 Off 5th stores in the United States. Hudson’s Bay operates 90 department stores in Canada and 48 Lord & Taylor stores in the United States. Hudson’s Bay acquired Lord & Taylor in 2006.

The Hudson’s Bay retail chain was a late-comer to e-commerce, relaunching TheBay.com as a full transactional e-commerce site in 2010 after several failed attempts. Beyond Canada, it currently ships to the United States and United Kingdom.

“With the addition of Saks, Hudson’s Bay Co. will offer consumers an unprecedented range of retailing categories and shopping experiences,” says Richard Baker, Hudson’s Bay Co. chairman and CEO. “This acquisition will increase our growth potential both in the United States and Canada, generate significant efficiencies of scale, add to our powerful real estate portfolio and deliver substantial value to our shareholders.” The company says it expects to realize C$100 million (US$97.40 million) in annual savings within three years through operating synergies between Hudson’s Bay and Saks. Hudson’s Bay Co. went public on the Toronto Stock Exchange last November, raising C$365 million ($355 million) in its initial public offering.

Bank of America Merrill Lynch acted as lead financial advisor to Hudson’s Bay, with RBC Capital Markets serving as an additional financial advisor on the transaction. Stikeman Elliott LLP and Willkie Farr & Gallagher LLP were legal counsels to HBC.

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Goldman Sachs & Co., Morgan Stanley & Co. and Guggenheim Securities acted as financial advisors and Wachtell, Lipton, Rosen & Katz acted as legal counsel to Saks.

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