(FT) -- Diageo, the UK drinks group, is to acquire one of China's best-known liquor makers in a deal that paves the way for one of the first foreign acquisitions of a big Chinese listed company.
Western governments have long pressed Beijing to be more open to foreign investment, and the Diageo deal marks the first time a foreign company has gained control of an important Chinese brand.
Diageo, which produces Guinness and Johnnie Walker, will spend as much as £815m ($1.3bn) to acquire control of Shuijingfang, a famous brand of baijiu, a fiery spirit, that bills itself as China's oldest maker and boasts distilling techniques dating back to the 14th century.
The complex deal will give Diageo a foothold in China's £25bn baijiu market by buying a majority stake in Sichuan Chengdu Quanxing Group, which is the largest shareholder in Shanghai-listed Sichuan Shuijingfang, the baijiu producer.
"The transaction gives the lie to the broadly held view that the Chinese M&A market is closed to foreigners," said Edward Radcliffe, partner at Vermilion, the lead adviser on the transaction. "If you abide by the rules, invest in long-term relationships and show commitment to the industries, you can get things done."
The news came as China and the UK announced £1.4bn in trade deals on Monday, with Wen Jiabao, Chinese premier, meeting David Cameron, UK prime minister, in London.
Mr Cameron said he also welcomed increased Chinese investment in the UK. "It doesn't matter if a cat is black or white as long as it catches mice," Mr Cameron said in an apparent allusion to a remark by Deng Xiaoping, China's former leader.
China's antimonopoly regulators had previously rejected Coca-Cola's proposed $2.4bn takeover of Huiyuan, a Chinese juice maker, in 2009, prompting concerns about how the antimonopoly law would affect foreign investment.
Drinks makers including Pernod Ricard have been scrambling to enter the Chinese baijiu market, as Chinese drinkers trade up to more expensive brands.
Paul French, chief China analyst at Access Asia, a research company, said: "All those years of Diageo bringing over Scottish bagpipers in kilts and teaching people a single malt, a double malt, etc, it didn't work.
"People want to drink the local stuff, so they [Diageo] have got to buy the local stuff," he said. Shuijingfang, listed in Shanghai under the English name Swellfun, reported sales revenue of Rmb1.8bn ($277m) last year and profit of Rmb400m.