The own of upscale retailer Lord & Taylor is adding another luxury nameplate to its portfolio. Canadian shop Hudson's Bay will buy Saks (UNKNOWN:SKS.DL), the two retailers jointly announced, in a deal valued at about $2.9 billion, including debt.

The combined company would have put up pro forma revenues and normalized EBITDA in the last fiscal 2012 of approximately $7.2 billion Canadian and $587 million Canadian, respectively, before any of the $100 million Canadian in annual synergies Hudson Bay expect to achieved within three years.

Noting the acquisition will create an iconic North American fashion retailer, Hudson's Bay Chairman and CEO Richard Baker said: "With the addition of Saks, HBC will offer consumers an unprecedented range of retailing categories and shopping experiences. This acquisition will increase our growth potential both in the U.S. and Canada, generate significant efficiencies of scale, add to our powerful real estate portfolio, and deliver substantial value to our shareholders."

The all-cash deal will find Hudson's Bay paying Saks investors a 5% premium of $16 per share (or a 30% premium to the price from May 20, when it was first speculated HBC would buy its U.S. rival).

HBC intends to finance the transaction, and refinance some existing indebtedness, with a combination of approximately $1 billion of new equity, $1.9 billion of senior secured loans, $400 million of senior unsecured notes, and available cash on hand.

Additionally, an entity affiliated with the Ontario Teachers' Pension Plan and funds advised by West Face Capital have committed to providing HBC with $500 million and $250 million of equity funding, respectively, to support this transaction.

In exchange for their support and financial, HBC has issued 1.5 million share purchase warrants to the pension plan and will issue an additional 3.5 million share purchase warrants to them upon the closing of the transaction. In consideration for the West Face commitment, HBC will issue 1.75 million share purchase warrants to West Face upon the closing of the transaction. The subscription price of the common shares and the exercise price of the warrants will be $17 Canadian per share, which represents a premium to the trading price of HBC's shares immediately prior to the announcement of the transaction.

Bank of America's (NYSE:BAC) Merrill Lynch division and Royal Bank of Canada (NYSE:RBC) have provided HBC with fully committed credit facilities, which, together with the equity commitment provided by the pension plan, is sufficient to close the transaction.

To achieve its lofty synergies goals, HBC plans to undertake operational efficiencies, as well as implement best practices across banners while consolidating back-office operations. Other ethereal goals include leveraging top talent across both organizations and optimizing a multi-banner shared services organization to drive additional benefits and reduce expenses.

Saks has a 40-day "go-shop" period during which Saks may solicit alternative proposals from third parties, though Saks doesn't anticipate receiving any additional offers.

Fool contributor Rich Duprey and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.