BUSINESS
09/25/2018 08:28 EDT | Updated 09/25/2018 11:31 EDT

Michael Kors Buys Versace For $2.59 Billion

By all accounts, the company has successfully melded shoemaker Jimmy Choo into its portfolio.

In this May 31, 2017 file photo, the Michael Kors name adorns his store on Madison Avenue, in New York.
AP Photo/Richard Drew, File
In this May 31, 2017 file photo, the Michael Kors name adorns his store on Madison Avenue, in New York.

NEW YORK — Michael Kors is buying the Italian fashion house Gianni Versace in a deal worth more than $2 billion (CAD$2.59 billion), continuing its hard charge into the world of high-end fashion.

The deal Tuesday comes just 14 months after the New York handbag maker spent $1.35 billion (CAD$1.75 billion) adding to its portfolio Jimmy Choo, the shoemaker that that rocketed to fame on the high heels of "Sex and the City.''

Like others in the fashion industry, Michael Kors Holdings Ltd. is trying to fire up sales by going glamorous.

Tapestry, once known as Coach, acquired Kate Spade last year. Like Coach, Michael Kors is changing its name as it seeks to reframe how people in perceive it.

Michael Kors is still the chief creative director and the honorary chairman, but his company will be renamed Capri Holdings Ltd. as it brings more big names under its umbrella, it was announced Tuesday.

Bringing in Versace adds a layer of glitter to the company, which sells handbags for less than $500. Versace bags can fetch five times that figure.

Alessandro Garofalo / Reuters
Supermodel Naomi Campbell presents a creation at the Versace fashion show during Milan Fashion Week Spring/Summer 2017 on Sept. 23, 2016.

Versace is known for its Medusa-head logo and its flamboyant styles have invoked collective gasps, perhaps most notably when Jennifer Lopez appeared at the 2000 Grammy Awards in a navel-bearing dress.

Some of Versace's fall styles include midi-dresses with baroque print for $2,950, and vinyl skinny jeans for $1,250.

Founded by Gianni Versace in 1978, the company and has been run by his heirs since his murder 21 years ago. It had been eyeing a public listing for several years. The Versace family still controls 80 per cent of the company. The investment firm Blackstone owns the remaining 20 per cent.

'Very exciting moment': Donatella Versace

Donatella Versace, Gianni's sister, is the brand's creative driver. She presented her latest collection for next spring and summer last Friday during Milan Fashion Week.

"This is a very exciting moment for Versace,'' said Donatella Versace. "It has been more than 20 years since I took over the company along with my brother Santo and daughter Allegra.''

Donatella holds 20 per cent of the business, Santo has 30 per cent and Allegra holds 50 per cent.

"With the full resources of our group, we believe that Versace will grow to over $2 billion in revenues,'' said John Idol, chairman and CEO of Michael Kors. "We believe that the strength of the Michael Kors and Jimmy Choo brands, and the acquisition of Versace, position us to deliver multiple years of revenue and earnings growth.''

Bloomberg via Getty Images
A man carries a Gianni Versace SpA branded shopping bag at a store in Milan on Sept. 24, 2018.

Still, Versace's sales have been slowing and despite some progress, Michael Kors hasn't fully rebounded from a slump. It's still trying rebuild its reputation after broadly distributing its products to department stores and outlet malls, which damaged the brand's image.

"We believe that some of the work required on Versace, which includes toning down some of the brasher elements of the brand which are now out of step with the more subtle tone preferred by modern consumers, are precisely the issues with which Michael Kors has struggled and is yet to satisfactorily resolve,'' wrote Neil Saunders, managing director of GlobalData Retail.

The deal is expected to close in the fiscal fourth quarter. Shares of Kors fell 2 per cent before the market open.