Luxury retailer Saks Inc. (NYSE: SKS) has agreed to a merger with Toronto-based Hudson’s Bay Company (HBC) in an all-cash deal for which the Canadian firm will pay $16 a share for the U.S. owner of Saks Fifth Avenue stores. The total value of the deal is $2.9 billion, which includes Saks’ debt.

Hudson’s Bay, founded in 1670, is the oldest continually operating company in North America. The company operates 48 Lord & Taylor stores in the United States as well as 90 Hudson’s Bay stores and 69 Home Outfitters stores in Canada.

The deal has been approved by the boards of both companies and needs Saks shareholder approval. Saks has been granted a 40-day “go-shop” period during which Saks may seek higher bids. An unspecified break-up fee payable to Hudson’s Bay is part of that agreement.

The $16 a share bid is just 4.5% higher than Friday’s closing price, but Saks’ stock has not reached that price in more than five years. Still Hudson’s Bay’s seems to be getting an awfully good deal. Shares of Saks popped earlier this year when the company hired Goldman Sachs to explore strategic alternatives. When Hudson’s Bay entered the picture, shares of Saks were trading at around $13.50, so it could be argued that the total premium is closer to 19%.

One might also argue that Saks’ most valuable asset is its real estate and that more store closings will not be far behind the closing of this or any other deal.

Hudson’s Bay held its initial public offering last November and is traded on the Toronto exchange. Revenues in 2012 totaled more than $4 billion.

Shares of Saks are up 3.9% in premarket trading this morning at $15.91 in a 52-week range of $9.24 to $17.51.

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