Paddy Power and Betfair have agreed terms of a potential merger.

The two former rivals have announced to the stock exchange that they plan to create Paddy Power Betfair Group, an entity in which Paddy Power shareholders would own a 52% stake.

Immediately prior to completion, Paddy Power shareholders would also receive a special dividend of €80m, the firms said.

Breon Corcoran, previously chief operating officer at Paddy Power and currently heading up Betfair, would be chief executive of the mooted new gambling group.

The tie-up is subject to due diligence by both companies first and then approval both by shareholders and competition regulators.

If it goes ahead it would make Paddy Power Betfair one of the world's largest stock market-quoted betting firms.

The merger plans come as the betting industry is gripped in a round of consolidation as firms search for scale to compete in the face of greater tax and regulatory controls.

Just last month rivals Ladbrokes and Gala Coral agreed a merger to create a £2.3 billion gambling giant that is expected to overtake the UK's biggest bookmaker William Hill.

The move will bring together 2,100 shops from Ladbrokes and 1,845 from Coral, creating a business with net revenues of £2.1 billion and underlying earnings of £392 million.

The owner of online gaming firm Sportingbet GVC Holdings and rival 888 Holdings are also currently in a £1 billion bid battle to buy Bwin.party, which has some of the world's biggest online gaming brands, including partypoker, partycasino and FoxyBingo.

A combination of new taxes on online gambling around the world and the need to invest in marketing and technology is behind the consolidation in the industry. The British government recently changed the way it taxed online betting and gambling machines.

However a Department of Finance official told RTÉ News that there would be no changes to Ireland's betting levy in the upcoming Budget.

The announcement came alongside Paddy Power’s results for the first half of the year, which saw the betting firm’s revenue rise by 33%.

Paddy Power had revenues of €527.8m during the six month period, while pre-tax profits rose 31% to €80.5m.

The firm said it had seen growth in both its online and retail divisions as it continued to add outlets in Ireland and Britain.

Paddy Power’s online revenue was €345m in the six months – more than two-thirds of which came from mobile.