Department store chain Guangzhou Grandbuy Co announced on Monday its controlling shareholder has agreed to acquire a 100 percent stake in rival chain Guangzhou Friendship Group Co.

The move paves the way for the merger of the two major Guangdong province-based department store groups, and marks a step forward in the reform of State-owned enterprises in Guangzhou.

The agreement between Guangzhou Grandbuy's and Guangzhou Friendship's controlling shareholders - Guangzhou General Merchandise Group and Guangzhou Yuexiu Financial Holdings Group Co, respectively - follows SOE reform measures issued by the Guangzhou municipal government in August, and decisions from the Guangzhou Municipal State-owned Assets Supervision and Administration Commission.

The merger of the two department store groups is planned amid the ongoing SOE reform in China.

"Traditional department stores are facing new challenges and opportunities, need new breakthroughs, and are looking to reinvent their distribution networks and stores," said Huang Wenjie, chairman of the Guangdong Commercial Real Estate Investment Association.

The merger will help the two to build up critical mass and concentrate their resources, and they will need to introduce new retail philosophies, technologies, talent and business models, he said.

The shares transfer is in line with Guangzhou Yuexiu Financial's wider strategy, helping the group to focus on its financial services business and to increase efficiency, the company said.

Guangzhou General Merchandise said it intends to finance the deal with cash, pricing Guangzhou Friendship at a value no less than that stated in the evaluation report by the Guangzhou SASAC.

The deal is subject to the companies' approval before an agreement is signed and approved by the SASAC of Guangzhou, as well as approval procedures concerning public companies are initiated.

Guangzhou General Merchandise has pledged to initiate the transfer of its shares in Guangzhou Friendship to Guangzhou Grandbuy within 24 months after it acquires the stake and completes due procedures.

Founded in 1959, Guangzhou Friendship had total assets of 3.69 billion yuan ($536 million) at the end of last year. The high-end department store chain generated revenue of 2.62 billion yuan last year, with net profit attributable to the parent company of 244.98 million yuan.

Guangzhou Grandbuy runs 26 department stores, shopping centers and supermarkets, and a watch store, in cities across Guangdong, as at the end of June this year.

The company reported 5.13 billion yuan in revenue in the first three quarters of this year, a 6.32 percent year-on-year growth. Net profit attributable to shareholders hit 152.97 million yuan in the period, up 5.95 percent on last year.

Ou Mijia contributed to the story.