Brazilian fashion companies Arezzo and Grupo Soma said on Monday they had agreed a merger to form an entity with revenues of 12 billion reais ($2.42 billion) to be 54 percent controlled by Arezzo.

The companies, which will bring together more than 2,000 company-owned and franchised stores and 34 brands, will later choose the name of the new company, which will have Grupo Soma’s shareholders owning the remaining 46 percent.

The exchange ratio established in the agreement stipulates that Soma Group shareholders will receive 0.12 new Arezzo & Co shares for each Soma share they hold.

The new company will be headed by Alexandre Birman, the current CEO of Arezzo & Co.

The merger comes as Brazil’s fashion sector, which includes Lojas Renner, Guararapes and C&A, has seen increasing competition in recent years, with rising interest rates and the entrance of Chinese online fast-fashion retailer Shein in the country.

By Alberto Alerigi Jr. and Steven Grattan; Editing by Louise Heavens

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