Carter's Inc. (CRI), which markets clothing for kids and babies, said Tuesday it has signed a deal worth about $312 million to acquire rival OshKosh B'Gosh Inc. (GOSHA)

The transaction joins two well-known brands in what Carter's said was a $17.5 billion baby and young children's apparel market. The combined company, with sales of more than $1.3 billion, will market its brand through large retailers in the United States and 352 of its own stores.

Carter's said it would continue to market OshKosh B'Gosh (search) as a separate brand and that the deal would help increase its share of the baby and young children's apparel market.

Under the terms of the deal — which includes the redemption of employee stock options — OshKosh B'Gosh shareholders will receive $26 cash for each share of common stock outstanding.

Carter's said it expects the deal to close in the third quarter. It plans to finance the acquisition with debt and has received commitments for a multiyear loan agreement from Banc of America Securities LLC and Credit Suisse First Boston.

As part of the transaction, Carter's said it plans to refinance its bank debt and is considering the redemption and refinancing of its 10.875 senior subordinated notes.

It said the refinancing would also result in a one-time charge of about $11.5 million after taxes, or 38 cents per share. Carter's added it expects the deal to be neutral to or slightly boost earnings in 2005 before estimated refinancing charges and noncash purchase accounting adjustments of 24 cents per share.

Carter's also said it sees the deal boosting earnings in 2006 after noncash accounting adjustments.