Betfair (BET) and Paddy Power (PAP) have become the latest gambling stocks to join the betting sector consolidation race after outlining details of a merger that would create one of the world’s biggest online betting and gaming companies.

It comes hot on the heels of the merger between Ladbrokes (LAD) and Gala Coral, as gambling companies scrabble to gain scale in an increasingly competitive and tax-heavy industry.

Investors clearly like the news, with shares in both Betfair and Paddy Power trading 18% higher at £30.71 and 92.5p respectively.

BETFAIR GROUP - Comparison Line Chart (Rebased to first)

Irish bookmaker Paddy Power operates on UK and Irish high streets and online, while Betfair lets customers bet against each other rather than accept bookies’ odds.

Paddy Power shareholders will own 52% of the combined company and Betfair shareholders will own 48%.

Betfair’s chief executive Breon Corcoran will run the group, which will be called Paddy Power Betfair. Andy McCue, chief executive of Paddy Power, will be chief operating officer.

The group will have revenues of more than £1.1 billion and will look at expanding in Europe, the US and Australia while maintaining a significant presence in Ireland and the UK.

‘The combination has compelling strategic logic and represents an attractive opportunity for both companies to enhance their position in online betting and gaming and to deliver synergies, customer benefits and shareholder value,’ a joint statement by the companies reads.

A trading update from Betfair shows revenue rose 15% to £135.4 million in the three months to 31 July despite the comparative period containing the World Cup.

Paddy Power's interim results reveal a 17% rise in pre-tax profit to €80.5 million with net revenue 25% higher to €527.8 million in the six months to 30 June.

Today’s announcement is the latest in a flurry of merger and acquisition deals to hit the headlines this year. Two months ago Ladbrokes and Gala Coral revealed plans to create the UK’s biggest bookmaker. Online gambling company Bwin.Party (BPTY) is in the midst of being taken over by 888 (888), although GVC (GVC:AIM) is attempting to steal the deal.

Companies are trying to cope with the raft of tougher taxes and regulations introduced last year, including a crackdown on Fixed Odds Betting Machines and a new UK Point of Consumption tax.

Issue Date: 26 Aug 2015