Discount store chain Dollar Tree announced on Monday that it will buy rival Family Dollar for $8.5 billion in cash and stock, making it the biggest discount retailer in North America.

Dollar stores have struggled in a weak economic market. However, the deal makes Dollar Tree the biggest dollar store of its kind and will help it compete with large discount retailer like Wal-Mart, which has made a concerted effort to attract money conscious consumers by selling more goods at $1 or less, reported Fox Business.

"This is a transformational opportunity," Dollar Tree CEO Bob Sasser said in a statement, according to The New York Times. "Throughout our history, we have strived continuously to evolve and improve our business. This acquisition, which enhances our footprint and diversifies our company, will enable us to build on that progression, and importantly, positions Dollar Tree for accelerated growth."

"Shares of Family Dollar, which has been under pressure from activist investor Carl Icahn to sell itself, rose almost 25 percent to $75.50 in premarket trading on Monday. Dollar Tree shares were up 8.8 percent at $59," reported Fox Business.

More than likely, the stores will target different demographics while operating under the same umbrella since Dollar Tree typically sells products priced at $1 or less and Family Dollar stocks items priced between $1 to $5, or more. Family Dollar is also known for selling wider selection of items, including Kraft cheese and Tide laundry soap, The Associated Press reported.

Once the deal closes, Dollar Tree said it expects to save about $300 million each year by 2018, three years later. Plus, the company expects the deal to add to its cash earnings and "generate significant free cash flow, enabling it to pay down debt rapidly".

"This acquisition will extend our reach to lower-income customers and strengthen and diversify our store footprint," Sasser said.