Prada announced on Tuesday that it has acquired Versace, bringing two major Italian luxury fashion houses under one roof.

The $1.38bn (£1.04bn) deal expands Prada’s portfolio of designer brands – including Miu Miu – as it seeks to compete with rivals including French luxury fashion conglomerate LVMH, which owns Dior and Fendi in addition to Louis Vuitton.

Proceeds from the sale will help cut debt for Capri Holdings, Versace’s former parent company, the firm said.

Storied designer Donatella Versace stepped down as the brand’s creative chief in March after 27 years at the fashion company, known for its glamorous styles and the iconic Medusa head logo.

She took over the company in 1997, after the murder of her brother Gianni. She was replaced by Dario Vitale, formerly a design director of Miu Miu, Prada’s youth-focused luxury brand.

Prada’s agreed price is well below the $2.15bn that Capri Holdings paid in 2018 to acquire Versace – a brand that has since faced sluggish sales.

Prada said in a one-line statement on Tuesday that it has successfully completed the acquisition of Versace, having received all required regulatory clearances.

Capri chief executive John D Idol said: “We plan to use the proceeds to repay the majority of our debt, which will substantially strengthen our balance sheet.”

The company will focus on its other brands, which include Michael Kors and Jimmy Choo.

Andrea Guerra, the chief executive of Prada, said earlier this year that Versace has “huge potential”.

“The journey will be long and will require disciplined execution and patience,” she said.