Paddy Power And Betfair Agree Merger

The deal frenzy in the betting and gaming sphere has intensified with Paddy Power (LSE: PAP.L - news) and Betfair announcing a merger.

The agreement in principle comes just weeks after Coral and Ladbrokes (LSE: LAD.L - news) agreed a tie-up, and would create one of the world's largest betting and gaming companies.

A combined group will command over £1.1bn of revenue with the firms believing that their combined scale and capabilities would leave it better placed to compete in new and existing markets.

The key terms of the deal state that Paddy Power shareholders would own 52% and Betfair shareholders would own 48% of the issued and to be issued share capital of the combined group.

Betfair's CEO, Breon Corcoran, and CFO, Alex Gersh, will retain their strategic leadership positions in the combined group with Paddy Power's chairman, Gary McGann, overseeing the board.

Mr Corcoran is no stranger to Paddy Power's operations having been its chief operating officer for two years before becoming Betfair's boss three years ago.

Betfair and Paddy Power have been two of the more successful gambling companies having seen their respective share prices rise 142% and 53% respectively over the last 12 months, before this morning's deal was announced.

This compares favourably to Ladbrokes whose shares have fallen 24% over the same period. Ladbrokes has come under increasing investor criticism for it's poorer online offering, an area in which Paddy Power has gained increasing market share.

Alongside the merger announcement both Betfair and Paddy Power issued financial results.

Betfair's results for the first quarter showed that revenues increased 15% despite the comparative period containing the World Cup where betting volumes are elevated.

Meanwhile, Paddy Power reported operating profit growth of 33% to €80m (£58m) for the first six months of the year.

The news was welcomed by investors who pushed shares in both of the companies higher in early trading. Betfair shares were 18% higher, whilst Paddy Power's rose 14%.

The combined group would be worth £5.8bn at current market prices.

Investors in Ladbrokes seem worried by the new bigger competitor sending its shares 5% lower in early exchanges.

Betfair was founded in 2000 by Edward Wray and Andrew Black who remain significant shareholders - with stakes worth £279m and £84m respectively.