What are the odds that the online betting exchange Betfair would join forces with its rival to create the world's largest Internet gambling company?

On Wednesday, they looked pretty good after Betfair and its Irish adversary Paddy Power announced that they had agreed in principle to a 5 billion pound ($7.81 billion, 6.83 billion euro) merger deal.

To the winner go the spoils

Fifty-two percent of the new company would be owned by Paddy Power shareholders while those with a stake in Betfair would get the other 48 percent.

The new company would have annual revenues of 1.1 billion pounds, more than any other online betting and gaming group.

Finalities of a deal still have to be ironed out, but both sides have agreed to give Paddy Power shareholders a 52 percent stake and Betfair shareholders the remaining 48 percent. Paddy Power owns around 600 brick-and-mortar betting shops, while Betfair is strictly an online venture.

Raising the ante

Shares in both companies jumped at the news. Paddy Power's were up 18 percent, while Betfair's climbed 17 percent.

The deal was the latest in an industry that has put much emphasis on consolidation recently as taxes in Britain rise and regulation gets tighter. The merger is meant to help cut costs by removing any redundant operations between the two companies.

Its size would also help it compete in new and existing betting markets, which are being increasingly dominated by smartphone and tablet users.

Under the terms, the combined group would be run by Betfair's chief executive Breon Corcoran, who also happens to be Paddy Power's former chief operating officer. Paddy Power Chairman Gary McGann would be chairman of the new company.

cjc/uhe (Reuters, AP)