Diageo Plc, the world's biggest spirits maker, plans to acquire a controlling stake in China's best-known liquor maker ShuiJingFang, in a £622-million ($1billion) deal making it one of the first big acquisitions by a foreign company of a Chinese listed company.

In the offer, first made in March 2010, which received Chinese regulatory approval just prior to Chinese Premier Wen Jiabao's visit to the UK this week, Diageo will acquire an additional 4\-per cent stake in its Chinese joint venture Sichuan Chengdu Quanxing Group (Quanxing) for £13 million ($22 million), taking its holding to 53 per cent.

The approval is in sharp contrast to the rejection of a proposed $2.4-billion bid by CocaCola for Huiyuan Juice, China's leading fruit juice maker, citing anti-monopoly laws. (See: China trips Coke on Huiyuan Juice acquisition)

Chengdu-based Quanxing holds a 39.7-per cent stake in ShuiJingFang, and under Chinese rules, if Diageo holds a majority stake in Quanxing it must launch a mandatory tender offer for the whole of ShuiJingFang, which is listed on the Shanghai Stock Exchange under the English name Swellfun.

Diageo, the maker of Guinness and Johnnie Walker, is now seeking approval from the China Securities Regulatory Commission (CSRC) to launch the required mandatory tender offer for the outstanding shares of ShuiJingFang, and the London-based spirits maker expects to receive the CSRC approval in due course.

Once Diageo receives the CSRC approval, it said that it will launch a mandatory tender offer for the whole of Shuijingfang at RMB 21.45 per share, the minimum price permitted by Chinese takeover regulations.

If all the other shareholders of ShuiJingFang were to accept Diageo's offer, the maximum amount payable would be approximately RMB 6.3 billion (£609 million, $972 million).

In December 2006, Diageo entered China's liquor market by acquiring a 43-per cent stake in Quanxing for $29.7 million, the first overseas company to do so. In August 2008, Diageo acquired another 6 per cent.

Paul Walsh, CEO of Diageo, said, "We look forward to working with our Chinese partners to further develop the ShuiJingFang brand both domestically and overseas.

"We are fully committed to build ShuiJingFang into an internationally successful iconic Chinese brand," said Gilbert Ghostine, president of Diageo Asia Pacific.

The world's largest distiller is expanding in Asia and Diageo's chief financial officer Nick Rose last year said in an interview that India and China are "two places that over the long haul we want to be really strong in."

Founded in 2000, Swellfun is one of the most popular liquor brands in China. Swellfun, Kweichow Moutai Co, Wuliangye Yibin Co and Luzhou Laojiao Co are China's four makers of premium baijiu or "white liquor",

Baijiu, which has its origins more than 600 years ago in China, is popular with the Chinese rich class. It is traditional Chinese liquor produced from sorghum. A 500-milliliter bottle of Swellfun baijiu is sold for about $68 each.

After acquiring its initial stake in Swellfun, Diageo introduced Swellfun's products to South Korea, Japan, Australia, Singapore, Thailand, and the US.

Swellfun posted net profit of RMB 235.4 million last year on revenues of RMB 1.8 billion.