The appointment of Philippe Mellier as Chief Executive Officer of De Beers continues to be a highlight in the diamond industry, where many feel a flavor of intrigue in this non-trivial personnel decision. Indeed, the Frenchman who has not the slightest experience in mining or in diamond business, or in jewelry retail, was put in charge of the world's largest diamond mining company in a very complex and perhaps the most difficult moment in its history in the course of more than a century. It is clear that the shareholders of De Beers had a number of prominent candidates with many years of positive experience in the company, but nevertheless chose a manager whose career has been associated with the car market and vehicle engineering.
In the history of the luxury industry there are just a few examples when success accompanied "outsiders" and taking into account the scale of achievements apparently expected on the part of Philippe Mellier we can probably recall the only case. In 1988, as a result of a controversial acquisition, Bernard Arnault turned to be the owner of LVMH, a French corporation. Bernard Arnault, as Philippe Mellier, was educated as engineer and originally had no roots in the luxury industry: he was engaged in the construction and real estate business, but had a special skill and talent for mergers and acquisitions (often - very unfriendly). After Bernard Arnault got hold of a controlling stake in LVMH, this company has distinguished itself as a real "vacuum cleaner" sucking in jewelry and cosmetic brands, premium liquors and haute couture clothing. Currently, LVMH owns several dozens of world-class brands and its market capitalization is about $60 billion. This is an undisputed leader of the global luxury market, whose strategy is based on almost continuous expansion: thus, in March 2011, LVMH acquired title to another stellar brand, Italian Bvlgary. Possession of top brands in all segments of the luxury market gives LVMH outstanding financial strength and competitiveness.
In 2001, the European Commission agreed to a joint venture between De Beers and LVMH. This was preceded by a long round of arduous negotiations, whose success was largely determined by the lobbying capabilities of Bernard Arnault. Since then, the joint venture of De Beers Diamond Jewellers shows steady growth becoming an adornment in the collection of jewelry brands possessed by LVMH, and for De Beers - the most important element in its strategy of vertical integration. Such a successful alliance necessarily requires further development.
Open sources are silent about when and under what circumstances Nicky Oppenheimer got acquainted with Philippe Mellier. But there is no doubt that Philippe Mellier and Bernard Arnault, the two prominent representatives of the French business elite, know each other quite well. And it is hardly a coincidence that Philippe Mellier is named among the top managers of LVMH on the web-site ‘Top management France’ at http://www.topmanagement.fr/component/tmcompany/single/6147.
Philippe Mellier took the reins at De Beers at a time when the activity of this diamond mining giant was clearly marked by the following trends: getting rid of low-margin deposits, expanding into auction sales of rough diamonds and developing own diamond jewelry brands. Clearing the asset from husk, skimming the cream off the peak prices and investing into the sector of branded sales - this is what you need to prepare for a merger. But to turn the company public – on which, as they say, Gareth Penny insisted and then so suddenly resigned, - is quite unnecessary in this case, because this will greatly complicate the process.
Theoretically, a merger between De Beers and LVMH (given the difference in capitalization, we should rather speak about a takeover by the French company of its South African partner) creates a fantastic prospect giving birth to a super giant, which will have broad capabilities in managing both rough and polished markets, as well as to a large degree in controlling the premium class jewelry retail. Of course, such a prospect will trigger serious opposition from antitrust authorities, primarily in Europe. Well, commentators discussing the appointment of Philippe Mellier indicate that the strong point of the new leader of De Beers is his ability to negotiate with governments. Soon this useful quality may really be needed.
Sergey Goryainov, Rough&Polished
