Drinks and food giant, Diageo, has announced that it has agreed to sell its coconut rum specialty brand, Malibu, to Allied Domecq for £560m. Allied Domecq, which had been seen as the favourite to pick up the brand, will fund the acquisition out of existing debt facilities and a £150 million placement of new shares.

Diageo will also sell the Mumm Cuvee Napa Californian sparkling wine operation to Allied Domecq for £27.5m though the two deals are not inter-dependent.

Diageo had been forced by US regulatory authorities to sell Malibu in order to clear the way for taking the Captain Morgan brand, part of Diageo's joint acquisition of the Seagram business last year with Pernod Ricard, into its portfolio.

At the same time, Diageo has reached an agreement with Puerto Rican rum company, Destileria Serralles, which was pursuing a legal case regarding ownership of the Captain Morgan rum brand, for Seralles to supply Diageo with rum for Captain Morgan.

Legal proceedings are accordingly going to be halted. It had been reported that Serralles was effectively pursuing its legal case for Captain Morgan on behalf of Allied Domecq which was said to put the latter company in a strong position to win the chase for Malibu.

"These transactions effect the sale of Malibu, confirm Diageo's ownership of Captain Morgan and secure its long-term rum supply," said Diageo CEO, Paul Walsh. "The disposal is the last of the significant transactions that result from our acquisition of the Seagram Spirits & Wines businesses."

It was also reported that Diageo will receive a $75m payment from Vivendi Universal for selling Malibu and ending the Captain Morgan litigation.