The news comes a little over a month after reports surfaced that Hudson's Bay Co. was interested in buying Saks Inc.
Hudson's Bay, which also runs some Canadian department stores, will pay $16 per share for Saks, a 5 percent premium over the company's Friday closing price of $15.31.
The companies put the deal's total value at about $2.9 billion including debt. FactSet says the New York-based retailer has about 150.2 million outstanding shares.
Saks' stock jumped more than 3 percent in Monday premarket trading. Shares are up 46 percent for the year to date.
"We are excited about what this opportunity and being part of a much larger enterprise can mean for the future of the Saks Fifth Avenue brand," Saks Chairman and CEO Steve Sadove said in a statement.
Saks will continue to run as a separate company under Hudson's Bay and will have its own merchandising, marketing and store operations employees. Key management personnel are expected to remain with the company.
Saks will have a 40-day period in which to seek out alternative third-party bids.
The buyout, which was approved by both companies' boards, is targeted to close before year's end. It still needs approval from Saks' shareholders.
Hudson's Bay said that it will look at strategic options for the combined property portfolio, which could include establishing a real estate investment trust.
Founded in 1924 by Horace Saks and Bernard Gimbel, Saks' flagship store on Fifth Avenue in New York City is a landmark of retailing and sits on some of the most valuable real estate in the world. The company employs about 15,000 people across 41 stores.
Saks added stores and expanded across the nation in the 1970s and 1980s. It became a publicly traded company in 1996.
Saks had 42 Saks Fifth Avenue stores and 66 Saks Fifth Avenue Off 5th stores at the first quarter's end.
Hudson's Bay was founded in 1670 as a trading firm for furs and other goods. It is considered the oldest company in operation in North America.