NEW YORK (Reuters) - Hudson's Bay Co said on Monday it would buy Saks Inc in a $2.4 billion deal that would add prime real estate to its portfolio and bring the luxury chain to its home market of Canada.

HBC, which operates Lord & Taylor in the United States and Hudson Bay in Canada, is offering $16 per share, a 30 percent premium over levels in May right before media reports emerged Saks had put itself up for sale.

Shares of Saks rose 3.4 percent to $15.87 in premarket trading.

HBC is paying $2.9 billion in cash, including the assumption of Saks' debt.

There is a 40-day "go-shop" period when Saks can seek better bids, but the company said it did not expect to get any. It anticipates the deal will close by year-end.

Saks, famous for its iconic Fifth Avenue flagship store in Manhattan, will operate separately within HBC and have its own merchandising, marketing and store operations teams. It will also keep its New York headquarters.

HBC plans to bring Saks department stores and outlet stores into Canada by converting some of its own locations.

HBC Chief Executive Officer Richard Baker said on a conference call that he saw a potential for up to seven Saks department stores and 25 Off Fifth outlets in Canada, and noted the company would open them as quickly as possible.

That will bring it into competition with retailers like the high-end Holt Renfrew chain as well as Nordstrom Inc , which is opening its first Canadian stores in 2014.

The combined company would have flagship stores in cities such as New York, Montreal and Toronto, and HBC said it would consider creating a real estate investment trust to benefit from that portfolio. After U.S. department store chain Dillard's Inc announced plans in 2011 to form a REIT, its shares soared.

Saks' Fifth Avenue flagship, in operation since 1924, generates about $600 million in sales a year, and by some estimates, the building is worth $1 billion.

"The Fifth Avenue store is a gem and everything else is second to that," said independent retail analyst Walter Loeb. "Many of the stores are not as productive."

Saks in recent years has closed department stores in markets like Portland, Oregon, and Dallas, but pushed its Saks Off Fifth outlet chain. It has 41 full-service stores and 67 outlets.

Before the speculation about the deal started in May, Saks' shares had last hit the $16 level in early 2008, before the recession decimated luxury spending.

In late 2008, faced with collapsing sales, Saks slashed prices, decimating margins and training shoppers to expect discounts. It took three years for the retailer to start selling closer to full price.

Saks has struggled to keep pace with rivals Nordstrom and Neiman Marcus Group Inc , which each get a much bigger proportion of sales online than it does.

Saks' two largest shareholders are Mexican billionaire Carlos Slim and Italian luxury businessman Diego Della Valle, who own a combined 30.5 percent of the stock.

HBC will finance the deal with about $1 billion in new equity, $1.9 billion in senior secured loans and $400 million of senior unsecured notes, as well as cash on hand.

Bank of America Merrill Lynch was HBC's lead financial adviser, with RBC Capital Markets providing additional services. Stikeman Elliott LLP and Willkie Farr & Gallagher LLP were the Canadian retailer's legal counsel.

On Saks' side, Goldman Sachs , Morgan Stanley and Guggenheim Securities were financial advisers and Wachtell, Lipton, Rosen & Katz provided legal counsel.

(Reporting by Phil Wahba in New York; Additional reporting by Dhanya Skariachan.; Editing by Lisa Von Ahn)