Japanese department stores Isetan Co. Ltd. and Mitsukoshi Ltd. have agreed to merge under a holding company in spring 2008, creating the sector's largest player, the Nikkei business daily reported on Friday.
A source familiar with the matter told Reuters in July that Isetan and Mitsukoshi were in talks on capital ties and might seek a merger. The Nikkei newspaper had also previously reported that a merger under a holding company was one proposal being discussed.
The Nikkei reported on Friday that Mitsukoshi, Japan's fourth-biggest department store operator, and Isetan, the fifth-largest, will approve the merger at board meetings to be held as early as next week.
Both companies issued statements saying nothing has been decided.
A combination would create Japan's biggest department store operator with annual sales of 1.6 trillion yen ($13.97 billion).
Many of their rivals have already joined hands in a market that contracted for nine straight years to 2006, hit by deflation and growing competition with large suburban shopping malls.
Isetan President Nobukazu Muto is expected to become chairman of the holding company while Mizukoshi President Kunio Ishizuka as president, the Nikkei reported. The merger ratio is still being discussed, the newspaper said.