PARIS, July 25, 2001/ --- In a significant victory for both LVMH and De Beers, the European Commission has approved a planned joint venture that will allow both parties to use the De Beers diamond trademark for retail ventures.

The Commission's anti-trust department has grown increasingly active and last month prevented a mammoth merger between General Electric and Honeywell, two American corporations.

But De Beers and LVMH managed to convince the Commission that its jewelry retail joint venture, Rapids World, would not lead to "significant structural change on the upstream rough diamond market."

As a result, following a three-month investigation, the Commission announced Wednesday it had cleared the Rapids World project "without conditions."

"It's a big positive, because this decision wasn't necessarily certain," said Claire Kent, an analyst with Morgan Stanley.

However the victory may prove to be a Pyrrhic one for De Beers, a South Africa-based consortium which controls over two-thirds of the world's production of rough diamonds, in part by strategic use of its stockpile to determine their quality and price on the market.

The Commission, based in Brussels, issued a statement of objections against De Beers' use of "Sightholder Agreements." This is a necessary preliminary step in antitrust proceedings and means, in effect, that De Beers remains under investigation.

In a joint statement, De Beers and LVMH said they were "pleased that the European Commission has given its green light... (and) looks forward to the exciting opportunities for the new, independent company as it unlocks the potential in the De Beers brand name with the benefit of LVMH's renowned expertise in developing and distributing luxury brands."

LVMH and De Beers have always insisted that Rapids World would increase competition in diamond jewelry retailing.

The market reacted well to the news pushing LVMH up 1.8 percent. De Beers and LVMH plan to invest $400 million in the venture over the next five years. Retail operations are expected to begin next year.