Michael Kors ups the glamour, buys Versace for $2 billion

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. Versace's flamboyant styles have invoked collective gasps, perhaps most notably when Jennifer Lopez appeared at the 2000 Grammy Awards in a navel-bearing dress.

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

It becomes is just the latest major Italian fashion house to be folded into the portfolio of a foreign entity, a trend that has raised no shortage of concern about the future of the made-in-Italy marquee.

French conglomerates have been the biggest buyers, with Kering buying Gucci, Bottega Veneta and Pomelato and LVMH taking on Bulgari and Loro Piana. The Qatari royal family owns Valentino.

Gianni Versace founded the brand in 1978, becoming a major force bringing to prominence Milan ready-to-wear and serving as a daring, sexy counterpoint to Giorgio Armani's more subdued elegance.

Gianni Versace's flashy, rock 'n 'roll designs and Medusa logo became emblematic of a generation led by Princess Diana and Madonna. He also helped create supermodels, like Naomi Campbell, Cindy Crawford and Claudia Schiffer and was the first to bring celebrities to the front row.

The family-run business was thrown into chaos with Versace's murder 21 years ago. His sister, Donatella Versace, took over creative direction, while his brother Santo continued on the business side. It had been eyeing a public listing for several years.

The Versace family still controls 80 percent of the company. The investment firm Blackstone owns the remaining 20 percent.

Donatella Versace presented her latest collection for next spring and summer last Friday during Milan Fashion Week.

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

Donatella, who holds a 20 percent stake in the business, will stay onboard as creative director and the family will become shareholders in the larger business. Santo now holds a 30 percent stake and Allegra, 50 percent.

"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."

Kors said Tuesday that it plans to open 100 new Versace stores (there are 200 in operation) at the same time that it amplifies online sales of the brand. It also plans to increase Versace's men's and women's accessories and its footwear business from 35 percent, to 60 percent of its overall brand's sales.

Though sales at Versace have been growing stronger recently, the business had been sputtering.

And despite some progress, Michael Kors hasn't fully rebounded from its malaise. It's trying rebuild its reputation after broadly distributing its products to department stores and outlet malls, which damaged its image.

Keeping the family involved and Donatella as the creative engine at Versace are both good ideas, said Neil Saunders, managing director of GlobalData Retail. The size of the company will provide Versace with a more global reach, especially in Europe and Asia, he said.

"All that said, we maintain our view that Versace is not a perfect operation," Saunders said. "While it is iconic and high-profile, there is a lot of work to be done to position it for higher growth. This will absorb both time and money from the group and has to be done in tandem with the ongoing efforts to put Michael Kors firmly on the right track."

The deal is expected to close in the fiscal fourth quarter.