Betfair and Paddy Power take a £5bn merger punt

Betfair and Paddy Power are set to merge in a £5bn deal that would create one of the world's biggest online betting and gaming companies.

Final details are still being worked out, but the companies said the deal had "compelling strategic logic" and boosted their market position.

Paddy Power shareholders would own 52% of the combined business, with Betfair investors owning the remaining 48%.

The combined business would have annual revenues of some £1.1bn.

"Discussions remain ongoing regarding the other terms of the possible merger," a statement said on Wednesday.

The new group would be the UK online market leader with a 16% share, according to industry data, passing a merged Ladbrokes/Coral on 14%, as well as William Hill and the privately owned Bet365.

Shares in Betfair soared 17% to £30.60 on Wednesday, while Paddy Power jumped more than 18% in Dublin.

If the deal goes ahead, Breon Corcoran, boss of Betfair, would become chief executive of the combined group, while his counterpart at Paddy Power, Andy McCue, would become chief operating officer.

'All about scale'

The combined company plans to retain the "distinctive and complementary" Betfair and Paddy Power brands in Europe.

Mr Corcoran said: "We fundamentally believe this industry is all about scale. By putting together two distinct but phenomenally strong brands, we'll have a market leading position in the UK, Ireland, Australia and in the United States."

Cormac McCarthy, Paddy Power's chief financial officer, said the combination was an "attractive opportunity".

"The scale and capability is unsurpassed and would leave us in a much better place to compete in our current markets, where competition is intense," he said.

Given the complementary nature of the two companies, he was confident that any competition concerns could be overcome.

Paddy Power was founded in 1988, when three Irish bookmakers merged. It has 350 betting shops and is the third-largest online bookmaker.

Betfair, in contrast, is offering a marketplace - or betting exchange - that lets customers bypass the need for a traditional bookmaker.

Based on their closing prices on Tuesday, Betfair was worth £2.4bn and Dublin-listed Paddy Power was worth €3.4bn (£2.5bn).

Industry mergers

Shareholders in Paddy Power would receive a special dividend of €80m.

There has been a flurry of merger activity in the gambling sector in recent months.

In July, online gambling firm 888 Holdings won a takeover battle for rival Bwin.party in a cash-and-stock deal valued at about £898m.

The two companies had been in discussions since the middle of May.

Ladbrokes and Gala Coral also recently sealed a £2.3bn merger.