UB Group chairman Vijay Mallya is all set to uncork a strategic partnership with the world's largest spirits behemoth Diageo, makers of Johnnie Walker whiskies and Smirnoff Vodka.

The two spirits firms are currently in `advance stages of talks', wherein Diageo could pick up a minority stake of 14.9% in Mallya's United Spirits (USL). This would give Diageo a foothold in a company that controls over 55% of the spirits market in India.

USL has large reserves of treasury stocks, which were generated from the overlapping capital of merging group companies, amounting to 17% stake of the company. Mallya has been looking to offload these reserve shares in order to raise capital.

The price at which the deal could be sealed remains unclear. Mallya has said that "serious expression of interest from multiple strategic investors had come in when the USL stock was trading at Rs 1,800 (in April 2008)". As of Tuesday, the USL stock was trading at Rs 496, which is a 72% drop from its highs in just nine months.

USL had entered into exclusive talks with Diageo in November 2008. Sources say that if the deal goes through, Diageo could get a USL board representation.

The UB Group's global buys in recent times have all been almost entirely funded by debt. USL shares have been pledged as additional collateral for some of the loans taken. The company which reported a net profit of Rs 311 crore on a total income of Rs 3,200 crore in 2007-08 has pledged over 18 million shares (amounting to 18% stake in the company) to a clutch of 22 bankers.