BETFAIR and Paddy Power have reached an agreement in principle to follow in the footsteps of Ladbrokes and Coral and join forces in a merger to create one of the world’s largest online gambling companies.

The move would result in a combined group with a revenue of over £1.1 billion (€1.5bn), leaving them “better placed to compete in existing and new markets”.

The key terms of the deal state Paddy Power shareholders, who would receive a special dividend of £58 million (€80m), would own 52 per cent of the new business with the remainder held by Betfair.

The two firms issued a joint statement to the stock exchange, which read: “The possible merger would create one of the world’s largest public online betting and gaming companies by revenue with enlarged scale, capability and distinctive and complementary brands.

“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.”

Betfair chief executive Breon Corcoran, formerly of Paddy Power, and Paddy Power chairman Gary McGann would fulfil the same roles in the combined group, while Paddy Power chief executive Andy McCue would become chief operating officer and Betfair’s Alex Gersh chief financial officer.

Corcoran, who moved to Betfair from Paddy Power in 2012, said: “The proposed merger with Paddy Power is hugely exciting. It would create a truly global sports betting group with unmatched products and talent, and significantly enhanced scale.

“The combined business would be one of the world’s largest online sports betting operators, with revenues totalling more than £1 billion.”

As with the Ladbrokes and Coral deal, the merger is subject to receiving approval from the competition authorities and the two companies expect to provide an update in the coming weeks.

Betfair results

On Wednesday Betfair took the opportunity to reveal strong performance in the first quarter of 2015 with a revenue increase of 15 per cent to £135.4m and Ebitda (earnings before interest, taxes, depreciation, and amortisation) up 19 per cent to £41m, which includes £12.8m of additional UK point of consumption tax.

Corcoran said: “These results represent another strong performance. Double-digit revenue growth against the period containing the World Cup last year is particularly encouraging and was ahead of our expectations.

“Betfair has continued to attract and retain customers through investment in our products, attractive pricing and market-leading promotions.

“The football season has started well, helped by increased brand investment. In time for kick-off we launched our ‘More to Play For’ advertising campaign across Sky Sports and BT Sport, signed new partnerships with five Premier League clubs and increased our presence on stadium perimeter boards.

He added: “Betfair US continues to perform well, helped by the acquisition of HRTV and TVG’s subsequent access to additional premium horseracing content.

“Betfair’s current momentum is strong and the business remains well placed to execute against our strategy and to continue to deliver profitable growth.”

Paddy Power profits up

Paddy Power, who were scheduled to release their first quarter figures on Wednesday, also posted promising results with an operating profit growth of 33 per cent to €80m - taking into consideration new taxes and product fees - and a net revenue rise of 25 per cent, with strong double-digit growth across all online and retail divisions.

McCue said: “Paddy Power has delivered a very strong performance in the first half and 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.”

The stock exchange reacted positively to the merger plan announcement. At 11am shares in Betfair were up 17 per cent, while Paddy Power's had risen almost 18 per cent.

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