"Any potential transaction is subject to further review and analysis by HBC, approval of HBC’s Board of Directors, as well as many conditions, including due diligence and third party consents, that are outside of HBC’s control," HBC said.

It has signed a non-binding letter of intent, but there is no assurance that the talks will result in a deal, the Canada-based company said in a statement.

Several people familiar with the matter had told Reuters that HBC and Signa had agreed in principle on a merger of their department store chains Kaufhof and Karstadt and that a deal could be expected soon.

Under the terms of the planned deal, Signa would hold a majority stake in the joint venture, the people said. HBC would likely receive close to 1 billion euros ($1.17 billion) as part of the transaction, they added.

Hudson's Bay bought Kaufhof in 2015 for 2.8 billion euros from German retailer Metro. It rejected Signa's 3 billion-euro ($3.7 billion) bid for Kaufhof earlier this year.

A merger between Kaufhof and Karstadt has long been the subject of speculation in Germany, where the two department stores are a familiar sight in cities.

Kaufhof runs 96 stores in Germany, while Karstadt has 82.

(Reporting by Maria Sheahan, Matthias Inverardi and Victoria Bryan; Editing by Alexander Smith)