The UK drinks giant Diageo has agreed to sell its Malibu coconut rum brand to rival Allied Domecq for �560m ($800m).

Earlier analysts had said that the Malibu brand would be worth up to $1.1bn.

But the price was reduced in return for Allied Domecq - the second largest spirits company in the world after Diageo - agreeing to drop its legal claim for the rights to the Captain Morgan rum brand.

The agreed sale of Malibu convinced the US competition authorities to lift a block on an $8.2bn sale of the Canadian Seagram wines and spirits empire to Diageo and to the French drinks group Pernod Ricard.

Seagram's drinks split

Diageo is expected to buy about 60% of Seagram's alcohol assets from Vivendi Universal.

Diageo would get to add Myers rums, 7 Crown American whiskey, Sterling Vineyards wines and Captain Morgan to its line of products.

Pernod would buy the remainder of the Seagram business, including Chivas Regal, Glen Grant, Royal Salute and Glenlivet whiskies, Seagram's Extra Dry gin and Martell cognac, to add to its Wild Turkey bourbon and Havana Club rum.

Market dominance

In October, the US Federal Trade Commission (FTC) had blocked the takeover of Seagram's drinks arm because it feared it could result in duopoly market dominance of the rum market, where the independent brand Bacardi dominates with a 51% share.

Seagram's rum brands, including Captain Morgan, command a 20% share while Malibu's share is 5%.

The decision was seen as a blow to Diageo, which had been harbouring high hopes of extending its dominance of the global spirits market.

The FTC was concerned that the deal would reduce competition in the US rum market and lead to higher prices for consumers.

In December, the FTC gave Diageo six months to sell Malibu.

Puerto Rican distiller

In this complex web of transactions between the world's leading drinks groups, Diageo also agreed to sell its Mumm Cuvee Napa Californian sparkling wine brand to Allied Domecq for �27.5m.

Diageo received $75m from Vivendi Universal as the complete set of deals were settled.

Formally, the Captain Morgan ownership had been contested indirectly by Allied Domecq via a Puerto Rican distiller Destileria Serralles which has agreed to drop its claim of ownership.