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Why is Michael Kors buying Versace?

What will change now that the fashion brands are under one roof?

Michael Kors is buying Italian fashion brand Versace, and renaming itself Capri Holdings. What is the thinking behind the deal and what will happen next?

Why is Versace being sold?

The sale could give Versace the boost it needs to compete with rivals.

Gucci, another Italian luxury brand, has far outstripped Versace under the ownership of conglomerate Kering. Last year Gucci brought in sales of 6.2 billion euro (£5.55 billion), compared with Versace’s 668 million euros.

Versace also sold a 20% stake to private equity giant Blackstone in early 2014. This added extra pressure for Versace to provide an exit.

Why does Michael Kors want to buy it?

Michael Kors says it can help Versace to reach two billion US dollars (£1.5 billion) in revenue.

In turn, the company, which is to be renamed Capri Holdings after the acquisition is complete, hopes the brand will help it to build overall revenues to eight billion US dollars.

Although Versace has lagged behind some peers, the brand is on course for double-digit growth in revenue, earnings and comparable sales growth.

This makes it attractive as a growth prospect, with Michael Kors chief executive John D Idol saying on Tuesday that the brand is “very relevant in the modern culture today”.

What will change?

Versace’s new owners want to increase the amount of revenue brought in by accessories and footwear from 35% to 60%.

On a call with analysts, Idol said this could include developing items in fast-growing sectors such as men’s sneakers.

The brand will also increase its store footprint across the world from 200 to 300 sites.

Combined with Michael Kors’ plans to expand wholesale partnerships with luxury department stores like Harrods and Galeries Lafayette, this means Versace products will be available in more physical retail spaces.

Will the Versace family still be involved?

Versace’s existing senior management team, which includes Donatella Versace, her brother Santo and daughter Allegra, will continue to lead the company.

The Versace family, who currently own 80% of the brand, will also receive 150 million euro in shares of the enlarged business.

Mr Idol said on Tuesday that Donatella Versace, who has been the creative leader of the brand since the death of her brother Gianni in 1997, was “an icon” and that her “leadership in the fashion field is a very key component” in the company’s success.

Will Michael Kors buy anything else?

The company has completely transformed in the last two years, going from a single-brand firm to a luxury conglomerate comprising three of the world’s best-known labels.

Mr Idol said on Tuesday: “We will focus on the three brands we have right now. We will not focus on any further acquisitions for the moment.”

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