The new group will be the world’s largest online betting and gaming operator with combined revenues of £3.8bn, based on last year's figures, and total market capitalisation of at least £10bn.
READ: Flutter Entertainment's US fantasy sports business FanDuel partners up with Major League Baseball
Flutter, created by the merger of Paddy Power and Betfair in 2016, will hold 54.6% on the enlarged group, while Canada's Stars Group, the online gaming and gambling specialist formerly known as Amaya, will own 45.4%.
If both companies’ shareholders approve the deal, which is expected in the second quarter of 2020, the deal should be completed before next October.
Management see the potential for £140mln of costs to be removed, though analysts said this is likely to be even higher.
FTSE 100-listed Flutter has been working towards the expansion of its US presence as EU regulations toughen, starting last year with the acquisition of New York-based fantasy sports site FanDuel, after the relaxing of laws by the US Supreme Court last year.
Stars Group, which as Amaya went private in 2016 after the collapse of merger talks with William Hill, established a presence in the US earlier this year via the launch of FoxBet, a national media and sports betting partnership with broadcast giant Fox Sports.
Once completed, Fox Sports will have the right to acquire 18.5% in FanDuel at its 2021 market value, while Fastball and Boyd, Flutter's fellow owners of the FanDuel business, will receive a total payment of 12.5% of the increase in FOX Bet’s market value between 2021 and 2023.
Analysts and investors impressed
"The market will love this transaction, consolidation has been a well held theme in this space and will be expected to continue," said analysts at Olivetree, admiring the potential to comfortably strip out around 5% of combined central costs.
"Transactions such as this make terrific sense for all parties – especially given the potential for increased exposure to the developing US market."
Olivertree saw few impediments to the transaction but said the UK competition approval "will be the biggest pinch point" but that as this is both company’s biggest market but still only enjoy around 12% market shares apiece.
Broker Davy said the deal “represents a step-change in scale and market share in increasingly regulated core markets, while reducing the amount of group revenues derived from these mature markets”, with UK and Ireland expected to fall to 49% of revenue and Australia to 15% on a pro-forma basis, from 59% and 22% respectively .
“After a period in which UK companies’ bombed-out valuations have left them vulnerable to foreign predators it is somewhat refreshing to see a constituent of the London market take the lead,” said Russ Mould at investment platform AJ Bell.
Shares were up 21.04% to 9,220p in mid-morning.