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De Beers to open gem shops
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January 16, 2001: 9:35 a.m. ET
South African miner to create luxury jewelry chain with France's LVMH
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LONDON (CNNfn) - France's LVMH Moet Hennessy Louis Vuitton agreed Tuesday to set up a chain of luxury jewel shops with diamond monopoly De Beers.
The South African miner and French branded goods firm will each invest up to $200 million over 5 years in the new business, according to a De Beers spokeswoman.
The plan is to establish "a small number" of luxury jewelry stores in "the world's most prestigious cities."
 The widely expected deal would reduce earnings in the short term but the financial impact in 2001 for both companies would be marginal.
LVMH (PMC) stock rose 1.5 percent to  68.65 in afternoon Paris trade. De Beers stock was 0.4 percent lower at 224 rand in Johannesburg.
LVMH will retain management control with De Beers having no day-to-day operational involvement in running the company, LVMH said.
LVMH Group Managing Director Myron Ullman is to be appointed as chairman of the new company, the French firm said.
"I think the challenge in transforming an industrial brand into a luxury brand should not be underestimated," Claire Kent, luxury goods analyst at Morgan Stanley Dean Witter, told CNNfn.com.
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 LVMH BRANDS
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Louis Vuitton
Givenchy
Guerlain
Dom Perignon
Ebel
Tag Heuer
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"The De Beers brand will be at the heart of our growing jewelry activities," Bernard Arnault, LVMH chairman, said in a statement.
LVMH said the South African miner would have no day-to-day role in the management of the company and the retailer will not buy diamonds directly from the De Beers group.
De Beers controls some 65 percent of the $8 billion global wholesale trade in rough diamonds from southern Africa, Russia, Australia and Canada.
The new retailing company may allow De Beers, which is prohibited from doing business in the U.S. where the government deems it a monopoly, to have better access to that market.
"Our understanding of the legal situation is that a company where De Beers owns 50 percent and has no management control is sufficient," to allow the company to do business in the U.S., said De Beers spokesman Andrew Lamont.
The U.S. market represents half of the world's $56-billion retail diamond business industry, Lamont said.
The French luxury goods maker said the shops would be sited in prestigious locations, with the first stores appearing within 12 to 18 months.
De Beers is in the midst of a corporate make-over, preparing to peel away its long-time monopoly in the diamond trade and find allies in its push to increase the cachet of diamonds as a way of reaping higher valuations for the company.
Lamont said among its new competitors in the market would be upscale jewelers such as Tiffany & Co. and Cartier.
-- from staff and wire reports 
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LVMH
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