MILAN, April 10 (Reuters) - Prada struck a deal

on Thursday to buy smaller rival Versace from Capri Holdings ( CPRI )

for $1.375 billion, which includes its debt, in a move

that unites two of the biggest names in Italian fashion.

Prada is seeking to expand, having defied a slowdown in

luxury demand, while Versace has been operating at a loss. The

merger strengthens Italy's hand in a luxury industry led by

French conglomerates.

The deal follows the announcement on March 13 that Donatella

Versace was stepping down as the chief creative officer of the

brand founded by her late brother Gianni.

"We aim to continue Versace's legacy celebrating and

re-interpreting its bold and timeless aesthetic," said Prada

Chairman Patrizio Bertelli.

"At the same time, we will provide it with a strong

platform, reinforced by years of ongoing investments and rooted

in longstanding relationships," added Bertelli, husband of Prada

designer Miuccia Prada. The couple are leading shareholders in

the company.

The price Prada has agreed to pay for Versace is a big

discount to the roughly $2.15 billion including debt that Capri

paid for Versace in 2018. Previously known as Michael Kors,

Capri bought Versace from the Versace family and Blackstone.

Owning Versace, with its bold, baroque-style prints, will

bring new customers to Prada, known for its minimalist style.

"Versace has huge potential. The journey will be long and

will require disciplined execution and patience," said Andrea

Guerra, the CEO of Prada.

The move comes at a time when several acquisitions and IPOs

have been scuttled in the wake of a global equity sell-off and

fears of recession triggered by U.S. President Donald Trump's

new tariffs this month.

Since Prada's acquisitions at the end of the 1990s of Helmut

Lang and Jil Sander, which leading Prada shareholder Bertelli

called "strategic mistakes", the group has largely steered clear

of major dealmaking.