Distell is set to lock horns with another international drinks company over the rights to South Africa's leading gin brand.

Diageo has given notice that it intends terminating its Gordon's Dry Gin production, distribution and marketing agreement with the Stellenbosch company.

Diageo through its Cape Town-based subsidiary, Guinness-United Distillers & Vintners, already has an estimated 45% share of the white spirits market in South Africa, including top selling brand Smirnoff Vodka. If they won Gordon's back it would give them overwhelming domination of the category.

Distell is also engaged in a protracted court battle over Martell VO Brandy after the former Seagram Group claimed it had not met agreed upon sales figures.

In a short, terse message in Distell's interim annual report earlier this week, the company told shareholders that it would take the appropriate steps to protect its rights to the Gordon's licence, which has more than 50% of the 6.4 million litre gin market. It is approximately four times bigger than its nearest rival Old Buck Gin, another Distell product.

Distillers Corporation, which merged with Stellenbosch Farmers Winery to form Distell, initially got the full production, distribution and marketing rights to Gordon's in 1975, but the product was on its books prior to that.

"There is no dispute about us meeting sales targets with Gordon's. This is simply a case of a large multi-national coming into our domestic market and wanting to take back their brand.

"It's not illegal, but we have spent a great deal of time, effort and resources developing the brand and we are not willing to step aside and just let it go - it's a strategic brand in our portfolio," said Steyn.

Gary May, MD of Guinness-UDV in South Africa, confirmed that his parent company in the UK had given notice to Distell that it wanted to restore the brand into its own portfolio. He said the local subsidiary was not involved in the discussions, which were still at an early stage. Notice to withdraw from the contract was a year.