The retail group, Coop, and the EPA retail chain have decided to join forces, forming Switzerland's second largest chain of department stores.
A joint statement, published on Tuesday, said Coop would acquire 40 per cent of EPA's share capital, with an option to take over a majority by 2009.
Under the deal, Coop and EPA would jointly operate more than 70 department stores and restaurants across Switzerland. However, the stores would retain their Coop and EPA names.
The two companies recorded a combined department store turnover of SFr1.35 billion ($800 million) in 2001.
The statement said the partnership was agreed on the basis of economic considerations. A spokesman for Coop, one of the leading Swiss retailers, added that the new group would be profitable from the beginning.
The price of the deal, which still needs to be approved by the regulatory authorities, was not disclosed.
More than 5,200 people will be affected by the move, but the companies said they had no plans to cut the workforce.
In a first reaction, trade unions welcomed the proposed deal, saying the poor working conditions for staff at EPA could only improve.
The merger with Coop is seen as a first move by EPA, which is Switzerland's third biggest department store chain, to relinquish its independence. Last year, the company sold its 90 low-price retail outlets to the Bon Appetit group.
EPA was founded in the 1930s and was run as a family business. It expanded into other sectors over the past decade, before the company, which has been run by the Buhofer family since last year, changed its business strategy to focus on its core business.
Migros and Globus
The latest deal comes five years after Switzerland's leading retailer, Migros, took over the Globus department store group and its low-price subsidiary, ABM.
For its part, the Swiss department store leader, Manor, said it was surprised by the deal, but insisted it would not change its business strategy.
swissinfo with agencies