Paddy Power and Betfair are planning a multi-billion pound gambling mega merger

Irish bookmaker Paddy Power is merging with Betfair, the world’s largest betting exchange.

The two companies announced this morning that they have “reached an agreement in principle on the key terms” of a deal.

The deal will create a gambling giant with annual revenues of more than £1.1 billion ($US1.7 billion). The combined market cap of the pair currently stands around £5 billion ($US7.8 billion), but will likely be higher post-merger.

Paddy Power is on top — shareholders will get 52% of shares in the new combined group, as well as a special €80 million (£58.5 million, $US91.8 million) dividend post-completion, and CEO Gery McGann will run the new group.

Paddy Power and Betfair have slightly different businesses and talk about the “complementary” nature of the deal. Paddy Power, known for its sport-related PR stunts, has a chain of high-street bookies for sports betting, while Betfair operates an online betting exchange — a martketplace where customers can bet against each other, rather than the bookie.

While the deal may be complementary, it may also be a precautionary move on the part of both management. There’s been a wave of consolidation in the gaming sector recently.

Ladbrokes and Coral merged earlier this summer and both 888 and GVC Holdings are currently trying to buy A merger will protect either Paddy or Betfair from any unwanted attention.

As well as announcing the deal, both companies put out their interim results. Here’s the highlights from Paddy Power:

  • Operating profit growth of 33% to €80 million (£58.5 million, $US91.8 million);
  • Net revenue up 33% to € 527.8 million (£385.3 million, $US606 million);
  • Full-year operating profit set to be above forecasts and higher than last year.

And here are the key points from Betfair:

  • Revenue up 15% to £135.4 million (£212.6 million);
  • Mobile revenues up 57%, with three-quarters of UK customers now using mobile;
  • Earnings after exceptional costs up 19% to £41 million ($US64.3 million).

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