Betfair and Irish rival Paddy Power have reached agreement on a £5 billion merger in a bid to secure leadership of Britain’s competitive online gambling market, the companies said yesterday.

Confirming the terms of a provisional agreement announced last month, Paddy Power shareholders will own 52 per cent of the group with Betfair investors owning the rest if the deal is approved by shareholders in both companies, Betfair said in a statement.

The new firm, which will be called Paddy Power Betfair, will be the market leader online in the UK with a share of 16 per cent, according to industry data, passing a merged Ladbrokes Coral group on 14 per cent, as well as William Hill and privately owned Bet365.

The betting sector has seen a string of deals this year as companies respond to higher tax bills in Britain and tighter regulation by looking to bulk up and better compete in an online market buoyed by the increasing use of mobiles and tablets.

Looking to bulk up and better compete in an online market

Ladbrokes and Gala Coral struck an all-share deal in July, creating a £2.3 billion group, while 888 and GVC Holdings are locked in a bidding war for online gambling firm Bwin party Digital Entertainment. Betfair CEO Breon Corcoran will be chief executive of the new group, which will have a premium listing on the London Stock Exchange and a secondary listing on the Irish Stock Exchange.

The firm will target a dividend payout ratio of approximately 50 per cent of the combined group’s profit after tax, the statement said. Betfair said the deal was expected to secure recurring annual pretax cost synergies of approximately £50 million.

Both brands will operate side by side in Europe and will operate Paddy Power’s portfolio of almost 600 betting shops, more than half of which are in Britain.

Betfair is an exclusively online business, best known for its technology which allows gamblers to bet against each other. Alongside its core exchange product, the firm – which has a sizeable presence in Maltais – also targeting a larger share of the broader sports betting market.

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