Canada’s Hudson Bay has sealed a deal with its German partners to create Europe’s third largest department store chain.

Hudson’s Bay and Austrian-headquartered Signa Holding will merge Germany’s Galeria Kaufhof and Karstadt chains, creating a business with annual sales of around €5.4 billion euros (US$6.3 billion).

Hudson’s Bay bought Kaufhof in 2015 for €2.51 billion. The merger values the German businesses combined real estate assets at €3.25 billion.

Under the deal, Signa will hold a 50.01 per cent stake in the combined company, with Hudson Bay holding the balance. The combined group will have 243 stores in Germany, Belgium and the Netherlands and employ some 32,000 people. It will rank in size behind only El Corte Ingles of Spain and London-based Marks & Spencer.

Hudson’s Bay will be paid €411 million for selling part of its German real estate assets to Signa. It will use the proceeds to reduce debt and invest in the new jointly owned retail business.

The new business will be managed by Signa and led by Stephan Fanderl, the CEO of Karstadt.