Years ago,when I was into western stuff and leatherwork.I made something like that once.
I worked out the shape and size of the main sheath and cut the leather out.
I took the small sheath leather and temporarily stitched it to the center part of the larger sheath top,using an over-wide top piece flesh side up and stitching it down the center ( where the small knife spine would sit), that way, when I rolled it to stitch the welt seam, the stitching down the center was hidden. I rolled it over the small knife to get the fit right and trimmed it to align with the large sheath edge.I then un-stitched it and tooled both pieces of leather. When the tooling and dying was done I stitched the pieces back together. Then I glued up the larger sheath and welt. I next rolled the small sheath leather over to come along the welt side, made a welt for the small sheath, and glued this up. After sanding the edge a bit to make a smoother line, I marked, then drilled the lacing holes, and laced the edge with a western triple loop lacing stitch. The laced edge took care of the transition from three layers to five layers nicely. I suspect you could just saddle stitch it and burnish the edge,too.
You have me thinking of making another one now.
Stacy