EU clears De Beers-LVMH venture but objects to De Beers' diamond marketing

Staff -- JCK Online, 7/26/2001 12:04:00 PM

European Union regulators cleared a joint venture Wednesday between South Africa's De Beers Group and France's LVMH Moet Hennessy Louis Vuitton SA to sell diamond jewelry in exclusive boutiques worldwide, the Associated Press (AP) reported.

But the European Commission, the EU's executive branch, also warned De Beers that the ``supplier of choice'' agreements it is seeking to impose on customers for rough diamonds ``violate EU competition law as they currently stand.''

De Beers controls about two-thirds of the world's supply of rough diamonds, down from nearly 85% a decade ago. It has shifted strategy to one focused more on adding value to diamonds already under its control, through marketing and branding, and strengthening control of the supply chain to retailers.

The 50-50 venture with LVMH foresees creating an exclusive line of De Beers branded jewelry and a network of shops to sell them around the world, the AP reported.

The EU had said it was concerned that could reinforce the dominance of De Beers in the mining and selling of rough diamonds.

But an investigation ``did not unearth a causal link between the combination of LVMH and De Beers at the retail level and a possible strengthening of De Beers' position in the upstream markets,'' the AP reported.

Considering the ``millions of dollars which De Beers plans to spend on marketing,'' the Commission said De Beers was likely be able to establish its new ``Forevermark'' logo and enhance its position ``even in the absence of the proposed joint venture.''

In a joint statement, the De Beers Group and LVMH said they "are pleased that the European Commission has given its green light to their planned jewelry retailing venture. This step resulted from a constructive dialogue with the Commission."

However, the Commission, in a separate statement, objected to the ``supplier of choice'' agreements De Beers submitted for approval last May, the AP reported.

Those agreements are designed to formalize the relationship between De Beers and its sightholders, for buying and selling rough diamonds.

The Commission said some restrictions and trading conditions in the agreements ``appear to violate European competition law.''

``De Beers is obviously in a dominant position in the diamond industry,'' EU spokesman Michael Tscherny told the AP. ``This standard contract could well represent an abuse of a dominant position.''

The statement of objections is a preliminary step in antitrust proceedings. There is no fixed timetable, but De Beers has ``several months'' to respond, Tscherny said.