American discount stores operator Dollar Tree has decided to acquire Family Dollar Stores, in a cash-and-stock deal that values the discount retailer at about $8.5bn.

Under the terms of the deal, Family Dollar shareholders will receive $74.50 for each share they own, comprised of $59.60 in cash and $14.90 in Dollar Tree stock.

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The merger has been unanimously approved by the boards of both companies

The merged entity will continue to operate the Dollar Tree and Family Dollar brands with over 13,000 stores and sales topping $18bn.

Also, the combined company is expected to record about $300m in synergies by the end of the third year following the deal’s closing.

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The deal is expected to close by early 2015.

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Dollar Tree’s CEO Bob Sasser said: "With the acquisition of Family Dollar Stores, Dollar Tree will become a leading discount retailer in North America, with over 13,000 stores in 48 states and five Canadian Provinces, sales of over $18 billion, and more than 145,000 associates on our team.

"We will continue to operate under the Dollar Tree, Deals, and Dollar Tree Canada brands, and when this transaction is complete, we will operate under the Family Dollar brand as well," Sasser added.

Family Dollar said it would close about 370 stores and lower prices on nearly 1,000 basic items in an effort to remain competitive.

Earlier this month, it reported its fiscal third-quarter earnings slid 33% as higher costs offset a slight increase in revenue.

Presently, Family Dollar operates more than 8,100 stores across the country.