The acquisition of Yves Saint Laurent's parent company, Sanofi Beauté, is Gucci's first outside Italy, and will place it on a collision course with its French arch-rival, LVMH.

Yves Saint Laurent: "Nice fit"

The presonality clash which was said to have blocked the deal has been resolved by the exclusion of YSL's founders.

Yves Saint Laurent and Pierre Bergé - who set up the company in 1962 - are being paid $70m to give up rights to the YSL brand. They will continue to run the haute-couture operations.

Gucci's chief executive, Domenico De Sole, said:"We believe Yves Saint Laurent is one of the really great trademarks, and our goal is to achieve the same financial success with YSL that we have achieved with Gucci."

By the end of last year, Gucci's sales had more than quadrupled since De Sole took the helm of the company four years earlier, driven by creative director Tom Ford's success at reinventing Gucci's classic shoes and bags into sexy urban status symbols.

Gucci shares surged on the announcement, which had been widely discounted by investors since Gucci began due diligence on Sanofi two months ago.

Earlier in the year, Gucci had fought a desperate battle to block a hostile takeover bid from LVMH, France's biggest luxury goods group.

"Enhance the brand"

Sanofi and Gucci make a nice fit, analysts said, given Gucci's strength in accessories and ready-to-wear and the French company's market clout in perfumes and cosmetics.

"Now that Gucci controls the YSL trademark, they can enhance the brand by introducing new products, like shoes and bags," said Michelle Tsang, a luxury goods analyst at Credit Suisse First Boston.

"It will be a whole new revenue stream for Gucci."

Gucci, which outsources all its production, can use its existing network of accessories and clothing producers for YSL.

It is not clear if Gucci's perfumes will be produced by Sanofi, since it recently renewed its licensing accord with Germany's Wella.