Vijay Mallya, the self-professed King of Good Times, has finally sold a majority stake in United Spirits Ltd (USL), the flagship company of the United Breweries (UB) Group, to Diageo Plc, the world's largest spirits maker in a complex Rs11,165 crore ($2.05 billion) deal.

Listed on both the New York and the London Stock Exchange Diageo, which holds 25 per cent of the world's premium liquor market, will acquire a 53.4-per cent stake in Bangalore-based USL in a two stage deal.

Diageo will buy a 19.3-stake in United Spirits for Rs1,440 ($26.5) per share from the UB Group, the USL Benefit Trust, Palmer Investment Group Ltd, and UB Sports Management (both subsidiaries of USL) and SWEW Benefit Company (a company established for the benefit of certain USL employees).

Following the sale, UB group would continue to hold 14.9 per cent stake in USL.

Shareholders of USL will then approve the preferential allotment of new shares to Diageo at Rs1,440 per share amounting to 10 per cent of the post-issue enlarged share capital of USL.

These purchases will automatically force Diageo to launch a mandatory tender offer under the Indian takeover rules, and the owner of premium liquor brands such as Crown Royal, Smirnoff and Guinness, will launch a tender offer to acquire 26 per cent stake of the enlarged share capital of USL at Rs1,440 per share.

On completion of the share purchases, Diageo will hold 53.4 per cent of the enlarged USL share capital  for Rs11,165 crore (approximately £1,285 million). Mallya will continue in his current role as chairman of USL, and UB Group and work with Diageo to build the USL business.

Diageo and Dr Mallya have also entered into a memorandum of understanding under which they will form an equal joint venture, which will own United National Breweries' traditional sorghum beer business in South Africa.

Diageo said that it will invest around $36 million as its share in the JV, and Diageo and Mallya are also considering the possibility of extending this JV in order to maximise opportunities in certain emerging markets in Africa and Asia (excluding India).

The deal will give Diageo the right to nominate directors and appoint the CEO and CFO in USL.

Diageo has been in on-and-off talks with Mallya about a sale since 1998, but talks never materialised in the past since both could not agree on a price.

Diageo, formed through the1997 merger of Guinness plc and Grand Metropolitan plc, is the world's leading premium drinks business with an outstanding collection of beverage alcohol brands across spirits, beer and wine, with its portfolio of products sold in more than 180 countries around the world.

These brands include Johnnie Walker, Crown Royal, J&B, Windsor, Buchanan's and Bushmills whiskies, Smirnoff, Cîroc and Ketel One vodkas, Baileys, Captain Morgan, Jose Cuervo, Tanqueray and Guinness.

It is already present in India through its imported Johnnie Walker scotch and Smirnoff vodka brand and local brand Rowson's Reserve whisky among others. Diego competes with Pernod Ricard, which has strong local brands like Royal Stag and Imperial Blue among others.

The USL deal will give Diageo access to some of the leading Indian brands such as Royal Challenge, Bagpiper Whisky, Director's Special and Gilbey's Green Label.

Diageo has recently gone on an acquisition trail in emerging markets like Turkey, China and Brazil and is also looking at the Mexican market in order to boost market share and revenue amid a slump in Europe.

Last year Diageo's chief financial officer Nick Rose had  said in an interview that India and China are "two places that over the long haul we want to be really strong in."

Diageo expects half its turnover to come from Asian, African and Latin American markets by 2015, as against 40 per cent in this financial year.

USL is the world's largest spirits company by sales volume, and exports a range of liquor brands to 37 countries. It holds a dominating 43 per cent share of the Indian liquor market through a robust distribution network and brands such as McDowell's No. 1 whiskey, Romanov vodka and Four Seasons wines.

(See: Diageo to acquire Turkish distiller Mey Icki for $2.1 billion; Diageo to acquire controlling stake in Chinese liquor maker ShuiJingFang; and Diageo to buy Brazil's most popular rum brand Ypioca for $469 million)