Betfair and Paddy Power to merge

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Online gambling firm Betfair and Irish rival Paddy Power said that they had reached an agreement in principle on a possible £5bn merger, marking the latest in a string of possible tie-ups across the sector.

The two firms said discussions were ongoing regarding some terms of the all-share merger that would create one of the world’s largest online betting and gaming groups with revenues of over £1.1bn.

Under the terms, Paddy Power shareholders would own 52 per cent of the group with Betfair shareholders owning the rest. Immediately prior to completion, Paddy Power shareholders would receive a special dividend of 80 million euros, the firms said.

Betfair chief executive Breon Corcoran, a former chief operating officer at Paddy Power, would lead the new group, with Paddy Power chairman Gary McGann keeping his role.

The tie up would be the latest in a flurry of M&A deals in a sector where companies are responding to higher tax bills in Britain and tighter regulation by looking to bulk up and better compete in the fast growing online market.

An attractive proposition

Paddy Power believes its proposed merger with British rival Betfair is a very attractive opportunity to create the world’s biggest online gaming company, the Irish bookmaker’s chief financial officer said.

Cormac McCarthy, chief financial officer at Paddy Power, said: “We think this is a very 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.”

“We are enthused by this, we think it’s very attractive but at the moment it’s just a possibility and there’s a lot to be done in the coming weeks and months.”

Paddy Power reports growth

Paddy Power also reported operating profit growth of 33 per cent to €80m and said that it’s new revenue was up 25 per cent.

Andy McCue, chief executive of Paddy Power, said: “Paddy Power has delivered a very strong performance in the first half with net revenue up 25 per cent in constant currency and operating profit up 33 per cent. Underlying operating profit was up 68 per cent excluding the impact of new taxes and product fees.

“While this performance was broadly based across all our online and retail divisions, Australia has been the standout with reported operating profit up 78 per cent.

“We have made substantial progress implementing the strategy we set out in March, with further payback to come from new mobile product releases, refreshed marketing campaigns and efficiency gains. We now expect full year 2015 reported operating profit to be a mid to high single digit percentage above 2014 and the consensus market forecast.”

String of consolidations

The possible merger between Betfair and Paddy Power is the latest in a line of consolidation in the gaming industry.

Last month bookmakers Ladbrokes and Gala Coral agreed to merge, creating a £2.3bn business which will be Britain’s largest high street betting group, maiking it better equipped to compete in the growing online market.

Sportingbet owner GVC said it was continuing to work closely with FoxyBingo owner “with a view to finalising” aspects of an offer as it seeks to gatecrash bwin’s takeover by 888 Holdings.

Bwin agreed last month to an £898.3m cash and shares offer by Gibraltar-based 888, but GVC has upped the ante with a proposal topping £1bn. GVC said that since its latest offer earlier this month “significant progress” had been made. Bwin confirmed the discussions but said its recommendation of 888’s earlier offer remained unchanged.

Two to one

Paddy Power was founded in 1988 by the merger of three existing Irish bookmakers and it has become well known for its irreverent marketing style.

Its rapid growth in recent years has seen it build more than 350 betting shops in Ireland and the UK, and it now ranks the third largest online bookmaker and sixth largest online gaming business in Britain and Ireland.

Betfair comes from a newer side of the bookmaking fence.

In 1999 professional gambler Andrew Black and city professional Edward Wray joined forces to form The Sporting Exchange, which went on to launch the Betfair Betting Exchange the following year offering the market something of a revolution.

Its first market was the Epsom Oaks in 2000 but the new approach to gambling quickly took off by giving punters to chance to take bets and subsequently bet in play.

Betfair floated on the London stock exchange in 2010.