Mid-priced clothing retailer and maker Jones Apparel Group Inc. (JNY) said on Thursday it was buying Barneys New York Inc. (search) in a $400 million deal to boost its retail business and move into luxury apparel.

Jones will pay $19 for each Barneys share, which includes shares outstanding, employee stock options and preferred stock and warrants, which will cost about $294 million, and fund the repurchase of about $106 million in Barneys debt.

Barneys will continue to operate as a stand-alone company under its current management team and pursue expansion plans, initially within the United States, but internationally as well over time.

"What was very impressive to us was that (Barneys') management team had a very clearly articulated growth plan long before we got on the scene," Jones' Chief Executive Peter Boneparth told a conference call.

The offer price was a discount of about 5 percent to Barneys closing price on Wednesday of $20.05 on the over-the-counter bulletin board where its shares are very thinly traded.

On Thursday its shares fell 6.23 percent to $18.80 in early trading while Jones' stock fell 1.45 percent, or 52 cents, to $35.46 on the New York Stock Exchange.

Analysts said the price was reasonable but there was some caution about how two such different companies would marry.

Barneys focuses on luxury while Jones makes and sells many of the contemporary fashion brands carried in U.S. department stores such as Jones New York, Nine West and Anne Klein.

"It could go very well, but it will take some time for Jones to adapt and adjust itself to Barneys and for Barneys to preserve its integrity," said Kurt Barnard, president of industry forecaster Retail Consulting Group (search).

Barneys, born in 1923 as a discount men's suit store, emerged from bankruptcy protection in 1999 and has since been repairing its balance sheet and expanding high-margin items under majority control of two turnaround investors, Whippoorwill Associates Inc. (search) and Bay Harbour Management LC (search).

Barneys put itself up for sale in June as it eyed ways to fund expansion plans.

It was expected to name the winner this week of three leading suitors although sources told Reuters that a fourth bidder had entered the race at the last minute.

The boards of both companies have approved the transaction, and Barneys shareholders owning about 75 percent of its common stock have agreed to execute written consent approving the deal so no further stockholder action is needed for it to proceed.

The deal is expected to be sealed around December.

Barneys operates stores in 21 locations, selling men's and women's fashions, accessories, cosmetics and home furnishings, generating net sales of $444.2 million for the year to July.

Its stand-alone flagship stores in premier locations like Manhattan, Beverly Hills and Chicago, serve a loyal, higher-income clientele, but it has also continued to expand it CO-OP stores, which carry lower-priced fashions.

"Jones gives us the opportunity for very disciplined, positive growth," Chief Executive Howard Socol said.

Boneparth said buying Barneys would give his company a new competency in luxury retail and greater retail strength.

With Barneys in the New York-based Jones stable, retail would account for 24 percent, up from 17 percent, of its projected 2005 net revenues, with the acquisition expected to boost earnings in 2005.