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TORONTO – Canada’s largest supermarket chain said Monday that it has agreed to purchase the country’s biggest pharmacy chain for $11.9 billion in cash and stock.

Loblaw Companies Ltd. said that by buying Shoppers Drug Mart Corp. it would create a retail giant with more than $40 billon in revenue and gain access to the growing small-urban store sector.

“I have long believed that the next chapter for growth at Loblaw should be based in a vision that combined health, wellness and nutrition. Loblaw combining with Shoppers Drug Mart is the ultimate expression of that vision,” said Galen Weston, executive chairman of Loblaw, in a conference call with analysts Monday.

“Not only does this transaction make compelling financial sense, it establishes a truly innovative platform for the future,” Weston said.

The move accelerates consolidation in a retail industry that faces increased competition as Walmart and Target expand in the country. Canadian retailers have faced increasing competition from large U.S. chains, such as Target, which began to roll out its stores across the country earlier this year.

It joins Walmart and Costco, and as well as domestic retailers such as Sobeys that offer a combination of merchandise, pharmacy products and groceries. A month ago, Loblaw rival Sobeys Inc. agreed to buy Safeway Inc.’s Canadian stores for nearly $6 billion.

“It increases the strategic imperative for Canadian retailers to do further acquisitions,” said Kenric Tyghe, an analyst at Raymond James Financial in Toronto. “With recent M&A competitive activity in the retail space, certain of Canada’s retailers have gone from leaders to outliers.”

The deal is the largest between two Canadian companies since Suncor Energy Inc. bought Petro-Canada in 2009.

However, Weston and other executives of the two companies said they anticipate cross-marketing of each company’s products – specifically mentioning the Loblaw President Choice and Blue Menu brands and Shopper’s Life brands – as well as services such as their loyalty points programs.

Bloomberg News contributed to this story.