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 is well below the roughly $2bn that Versace's former parent company, Capri Holdings, paid for the brand in 2018.

The acquisition expands Prada's portfolio of designer brands - including Miu Miu - as it seeks to compete with rivals including French conglomerate LVMH, which owns Dior and Fendi in addition to Louis Vuitton.

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.

The company is being sold at a roughly $700m loss after Versace's sales slowed, along with the sale of Capri Holdings' other brands, which include Michael Kors and Jimmy Choo.

During Capri Holdings' ownership, Versace shifted from its recognisable ornate designs to embrace a more minimalist trend – while hiking prices.

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

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

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."

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," he said.