The European Commission said on Wednesday it had begun an in-depth inquiry into plans by diamond giant De Beers and luxury goods group LVMH to set up a chain of luxury jewelry stores together, Reuters reported.
The Commission said an initial one-month investigation had identified competition concerns about the joint venture and the increased power it might give De Beers in the rough diamond market and that it wanted to take a more detailed look, Reuters reported.
De Beers, which is currently subject of a $16.7 billion takeover bid led by its sister company Anglo American Plc, told Reuters that it no immediate comment and said its lawyers were studying the Commission’s announcement.
A spokesman for LVMH Moet Hennessy Louis Vuitton in London said the joint venture partners would comment further on Thursday. “It hasn’t rocked the boat, we are more than willing to cooperate,” he told Reuters.
The Commission said in a statement its initial probe had found concerns that the De Beers jewellery retail brand could lead to the diamond firm increasing its “dominant position in the upstream markets for the supply of rough diamonds”.
It had also given rise to worries that it would be able to put middlemen who polish the diamonds at a disadvantage, as well as increase the demand for De Beers diamonds, which could “raise the barriers that other competitors have to overcome in order to compete effectively”.
De Beers and LVMH have said the joint venture, unveiled in mid-January and to be called Rapids World Ltd, will allow them to exploit the De Beers brand through luxury stores in prestigious sites around the world and planned to invest $200 million each in the project over four to five years.
The move is a major part of the Johannesburg-based diamond miner’s plans to take advantage of its brand power and add retailing to its mining and marketing of rough-or uncut-stones.
De Beers, which controls 65% of the world’s $8 billion market in rough stones from southern Africa, Russia, Australia, and Canada, now has the chance to exploit a brand regarded by many as woefully underused.
It wants to change from being “buyer of last resort” for rough stones to “supplier of choice”.
The firm, which coined the phrase “A Diamond is Forever”, has said it wants the venture to carve out a new market in branded diamonds, rather than take business from existing players, many of whom end up buying rough stones it has taken out of the ground.
The 113-year-old company has had a reputation for secrecy, which it has been trying to shed in recent years.
But its executives still cannot travel to the United States for fear of prosecution by anti-trust officials, who see it as a cartel and have accused it of price-fixing.