Chilean food retailer D&S has agreed to merge with South American department store chain Falabella in a deal that will create a US$15bn retail giant.

The companies said the merged entity, Falabella-D&S, would pursue growth inside and outside Chile.

The controlling family shareholders in Falabella, which has operations in Chile, Peru, Argentina and Colombia, will hold a 77% stake in the new company. D&S shareholders will hold the remaining 23% interest.

Falabella-D&S will incorporate businesses including the D&S-owned Lider, Chile's largest food retailer, as well as interests in home improvement, financial retail services and shopping centre sectors.

Falabella director Alfredo Moreno said the companies needed to merge to be able to compete internationally.

Moreno said: "Big countries have big companies and the only way to compete with them in international markets is by means of highly-efficient companies with bigger relative size."

D&S vice-president Hans Eben argued that the deal creates "a virtuous cycle that increases employment and improves productivity and competitiveness".

The companies' shareholders in will meet in the coming weeks to rule on the merger, with two-thirds of votes needed for approval.

Falabella and D&S will then put the case for the merger before Chile's competition watchdog.