Coach parent Tapestry will buy Michael Kors owner Capri Holdings in a deal valued at $8.5 billion, creating a top U.S. fashion house that can better compete with larger European rivals in the global luxury market.

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Tapestry will pay Capri shareholders $57 per share in cash, or $6.69 billion, representing a premium of nearly 65 percent. Capri's shares were trading at $54.90 before the bell on Thursday. Tapestry's shares were down 2 percent.

The deal brings Tapestry's brands, which include Kate Spade and Stuart Weitzman, and Capri's Jimmy Choo and Versace labels under one roof.

U.S. luxury firms have consistently lagged their European peers such as LVMH, which owns 75 brands including U.S. jeweler Tiffany and fashion labels Louis Vuitton and Dior.

The acquisition is also a bulwark against a looming slowdown in demand for luxury goods in the U.S. following a post-pandemic surge as still-high inflation forces customers to cut back on discretionary spending.

"(The weakening demand) has put pressure on Tapestry and Capri, both of which are now looking to international markets to bolster growth. There is more security in embarking on bold international plans as a larger entity," said GlobalData Managing Director Neil Saunders.

Capri CEO John Idol said on Thursday the deal would provide greater resources and capabilities "to accelerate the expansion of our global reach."

Both companies have grown through acquisitions.

In 2017, Tapestry - then known as Coach Inc - bought handbag maker Kate Spade for $2.4 billion. In the same year, Capri, formerly known as Michael Kors, acquired British shoemaker Jimmy Choo for $1.2 billion.

A year later, Capri bought Versace for $2.2 billion.

The acquisition of Capri could also mark a revival in deal-making in the U.S. luxury space while European majors have snapped up high-end brands.

Last month, French luxury group Kering, which is struggling to revive sales at its star brand Gucci, said it was buying a 30 percent stake in Italian fashion label Valentino.

LVMH, the world's largest luxury group, closed its $15.8 billion acquisition of Tiffany in early 2021.

The Wall Street Journal first reported about a potential deal between Capri and Tapestry late on Wednesday.