In one of the best strategic moves in the liquor industry, the world’s largest spirit maker, Diageo plc (NYSE:DEO) (LON:DGE), announced plans to acquire a controlling stake in India’s largest liquor company for approximately $2 billion. London-based Diageo has gained a stronger foothold in the world’s fastest growing liquor market.

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Diageo, the producer of Johnnie Walker whiskeys, had set the target of generating 50 percent of its revenues from emerging markets by 2015. By acquiring Bangalore-based United Spirits Limited (NSE:MCDOWELL-N) Diageo will meet its goal much earlier. For the financial year 2012, United Spirits had a revenue of $3.3 billion.

The acquisition will be completed in two stages. First, Diageo plc (NYSE:DEO) (LON:DGE) will buy 27.4 percent in USL, in two different transactions. Of which, a 19.3 percent stake will be sold by the holding companies and trusts owned by the flamboyant businessman Vijay Mallya. For the remaining stake, United Spirits will issue new shares.

In the second stage, Diageo plc (NYSE:DEO) (LON:DGE) will make an open offer to the Indian public shareholders as required by the Indian stock market regulations. The companies reached an agreement after several weeks of negotiation. The companies said in a joint statement that Vijay Mallya will remain the chairman of the company, and he would have about a 15 percent stake in the company after the deal.

Vijay Mallya’s Kingfisher Airlines Ltd (NSE:KFA) has been struggling for survival. Its operations were suspended last month after employees started protests because they haven’t been paid for months. Though the aviation company has settled the dispute with employees, it still needs to convince banks and regulators that Kingfisher Airlines Ltd (NSE:KFA) is viable before it can fly again. Kingfisher is under the debt of $2.5 billion, and has never made profits since its launch. The stake sale in United Spirits Limited (NSE:MCDOWELL-N) will give Vijay Mallya much needed breathing space.

However, during the conference call with media, Mr. Mallya refused to say anything about whether the proceeds from stake sale in USL will be used to revive his airline business. “We have multiple businesses and each business operates independently. There is no cross-contamination. There has never been, there never will be.”

Diageo plc (NYSE:DEO) (LON:DGE) exited the Indian whiskey business during the 2002 recession to focus on the international business. But, it made a big comeback. The British company observed USL’s weak finances, and smartly waited to buy United Spirits Limited (NSE:MCDOWELL-N) until the flamboyant Indian billionaire held a weaker negotiating position.

“This will become Diageo’s No. 2 market after the United States,” said Ivan M. Menezes, the COO of Diageo plc (NYSE:DEO) (LON:DGE). “This has the potential, in the long term, to become our largest market.”