Paddy Power and Betfair in talks over possible merger

News comes as Paddy Power reports 33% jump in operating profit

Bookmaker Paddy Power is planning to merge with rival Betfair in a multibillion euro deal to create one of the world's biggest gambling companies .

The proposal is the latest in a string of deals in the sector and would create a business with more than €1.5 billion in revenues should it go ahead.

Shares in Paddy Power gained almost 18 per cent to hit €19.75 in Dublin on Wednesday morning following the announcement.

The news came as Paddy Power reported a 33 per cent jump in operating profit to €80 million with net revenues up 25 per cent on the back of strong double-figure growth across all online and retail divisions.


Paddy Power chief executive, Andy McCue, indicated that it is likely to be next year before any deal is done.

Asked if the merger could be completed in early 2016, he said that deadline would be “quite aggressive” but agreed that it was possible.

A combined entity would have betting shop and on-line businesses in Ireland, Britain, Australia, a number of European countries and a presence in the US.

Both companies’ existing brands would remain following any deal. However, Mr McCue said that the pair had yet to agree if Paddy Power and Betfair would remain as distinct companies with their own chief executives within the proposed new group.

He refused to be drawn on whether jobs would be lost following any merger, although he stressed that an agreement should provide the basis for further growth.

The two sides have yet to agree where it the enlarged business, to be called Paddy Power Betfair plc, would be headquartered, but it is likely that its shares would be listed in both Dublin and London.

Paddy Power shareholders would own 52 per cent in the combined group with Betfair shareholders owning the remaining 48 per cent.

Paddy Power chairman Gary McCann would take on the same role in Paddy Power Betfair.

Mr McCue would become chief operating officer and an executive director of the combined group.

Betfair chief executive Breon Corcoran would take on the same role in the new company.

Betfair's chief finance officer Alex Gersh would also take that role in the enlarged business.

Paddy Power chief financial officer, Cormac McCarthy, confirmed that he will leave following the merger.

The combined group’s board would include non-executive directors nominated equally from each of Paddy Power and Betfair.

Discussions over a possible merger remain under consideration but are conditional on the completion of due diligence, the companies said.

The tie up would be the latest in a flurry of 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.

Last month bookmakers Ladbrokes and Gala Coral sealed an all-share merger, creating a £2.3 billion betting group, while 888 and GVC Holdings are in a bidding war for online gambling firm Digital Entertainment.

Paddy Power is the larger of the two firms with a market capitalisation of €4.7 billion, versus €3.3 billion for Betfair, which has seen its shares rise by 140 per cent in a year on the back of strong revenue growth.

Paddy Power said on Thursday it expects full-year operating profits to be ahead of market forecasts.

It said that on a constant currency basis, operating profit was up 68 per cent for the first six months of the year, excluding the impact of new taxes and product fees.

Paddy Power’s online division saw revenue growth of 34 per cent in the six months to the end of June to €345 million, with sportsbook up 42 per cent and egaming up 14 per cent. Operating profit for the division increased 45 per cent to €70 million, the company said.

Mobile net revenue accounted for 67 per cent of online revenue, with 78 per cent of active customers transacting via mobile devices during the six months under review.

Online net revenues - excluding Australia - rose 26 per cent to €200 million with operating profit up 21 per cent to €31.6 million, despite €28 million in new taxes.

The group’s Sportsbet subsidiary, which is now the biggest online brand in Australia saw sportsbook revenue rise 46 per cent to €151 million with stakes up 37 per cent. Operating profit was up 69 per cent to €38.8 million.

Irish retail net revenues were up 14 per cent with operating profit up 36 per cent to €10.6 million. The group now has 252 shops in the Republic with 7 units opening up over the last six months. In Britain, retail net revenue was up 21 per cent with operating profit up 3 per cent to €12 million despite €2 million of additional machine gaming duty and the negative impact of new machine regulation. The group now operates 336 shops across the UK with a net 12 units opening up during the period under review.

The company said it saw substantial improvements in the Italian market with net revenue up 24 per cent and operating costs down 19 per cent. Operating loss fell by €4.2 million to €4.7 million.

“Wenow expect full-year 2015 reported operating profit to be a mid to high single digit percentage above 2014 and the consensus market forecast,” said Mr McCue.

Additional reporting: Reuters

Charlie Taylor

Charlie Taylor

Charlie Taylor is a former Irish Times business journalist

Barry O'Halloran

Barry O'Halloran

Barry O’Halloran covers energy, construction, insolvency, and gaming and betting, among other areas