Paddy Power, Betfair Agree to Create `Very Big Beast'

Paddy Power bookmakers.

Paddy Power bookmakers.

Photographer: Matthew Lloyd/Bloomberg
  • Deal to create world's biggest online gaming company
  • Betfair CEO Breon Corcoran will lead enlarged business

Paddy Power Plc and Betfair Group Plc plan to merge in a deal that creates the world’s biggest publicly-listed online gaming company, the latest in a wave of combinations across the industry.

Talks on the structure of the transaction have yet to be concluded, though agreement has been reached in principle, the companies said in statements on Wednesday. Betfair’s Breon Corcoran, a former Paddy Power executive, will lead the enlarged business, which will have annual revenue of more than 1.5 billion euros ($1.7 billion).

Combining Paddy Power and Betfair brings together two of the industry’s fastest-growing businesses at a time when increased regulation and taxation are driving companies to seek efficiencies through mergers. Ladbrokes Plc agreed to buy Coral Group last month to create the biggest U.K. betting-shop chain. Digital Entertainment Plc has agreed to be bought by 888 Holdings Plc, a deal that faces a challenge from GVC Holdings Plc.

“Combined, the product offering will be as good as, if not better than, all leading competitors,” David Jennings, an analyst at Davy in Dublin, said in a note. “We see substantial value creation potential.”

Shares Soar

Paddy Power shares jumped as much as 21 percent to 94.50 euros in Dublin, the biggest advance since a 2000 initial public offering. Betfair also climbed as much as 21 percent, the most since 2010.

Both companies reported results on Wednesday to show how they are merging from a position of strength. Paddy Power’s first-half net revenue climbed 33 percent to 527.8 million euros, and the company said it expects its operating profit for the year to beat analysts’ estimates. Betfair said earnings before interest, tax, depreciation and amortization increased 19 percent in its first quarter to 41 million pounds ($64 million).

“Both Paddy Power and Betfair are delivering sector-leading performances,” Nick Batram, an analyst at Peel Hunt in London, said in a note. “Combined, they will represent a very powerful team.”

Formed in 1988 by the merger of three Irish bookmakers, Paddy Power has grown to become that country’s largest betting-shop owner with 250 shops. It also has 334 shops in the U.K., though most of its growth comes from its online businesses, including the largest online brand in Australia.

Online Boom

Betfair was created in 1999, providing an online exchange that allows Internet users worldwide to bet on sporting events, including horseracing.

Helped by a boom in online gambling, particularly through mobile devices, both businesses are growing rapidly in the face of increased taxation and regulation. In the U.K., all bets have been subject to a 15 percent point-of-consumption tax since December.

The Paddy Power and Betfair brands will remain separate if the deal goes ahead, the companies said. Shareholders in Dublin-based Paddy Power will own 52 percent of the combined company, with holders of London-based Betfair owning the rest. Paddy Power shareholders will also receive a special dividend of 80 million euros ($91.9 million) prior to completion, the company said.

Corcoran, chief executive officer of Betfair, will become CEO of the proposed new company, while Paddy Power’s Gary McGann will be chairman. Corcoran left Paddy Power for Betfair in 2011.

‘Triumphant Return’

“Given the strong overlap of products and history between the management teams it should be a good fit,” said David Holohan, an analyst in Dublin with Merrion Capital. “The deal also marks a triumphant return for Breon Corcoran.”

Paddy Power CEO Andy McCue will be chief operating officer and executive director, the companies said. Alex Gersh, Betfair chief financial officer, will assume the same role at the combined firm, with Paddy Power CFO Cormac McCarthy leaving.

Morgan Stanley and IBI Corporate Finance are advising Paddy Power, while Goldman Sachs Group Inc. is providing financial advice to Betfair, according to the statement.

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