KESA Kesa Elect.

PARIS—Two of France's biggest bricks-and-mortar retailers reached an agreement on the key terms of a 615 million pound ($942.7 million) merger as they seek to build scale to better compete with e-commerce companies.

Groupe Fnac SA said it would swap one of its shares for 37 Darty PLC shares. A formal offer has yet to be made, but the Darty board has indicated that it would recommend an offer with these terms. Knight Vinke Asset Management LLC, which holds 14.3% of Darty shares, also said would accept this offer.

A combination of Fnac and Darty would create a French retail giant with annual sales of more than €7 billion ($7.84 billion) and would triple the number of Fnac stores to more than 500. Darty is listed in the U.K., but its retail operations are located primarily in France.

The proposed merger shows the extent to which the growth of e-commerce companies is shaking long-established retailers to rethink their businesses. Fnac sells everything from books to electronics to music and has built a website with speedy delivery service. But its sales in 2014 were slightly down as it came under pressure from online-only retailers.

Fnac, which had been in talks with Darty for several weeks, said previously that the merger would lead to cost savings of at least €85 million a year. It listed the strength of the two brands and their complementary store networks as reasons to pursue the merger.

In the statement, Fnac also said it would offer Darty shareholders a cash alternative up to €95 million, giving shareholders the chance to receive cash instead of shares. Under U.K. takeover rules, Fnac now has until Nov. 11 to make a firm offer.

Write to Nick Kostov at Nick.Kostov@wsj.com

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(END) Dow Jones Newswires

November 06, 2015 03:45 ET (08:45 GMT)

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