Tabcorp and Tatts are merging into a single $11.3 billion gaming giant they say will be able to take on overseas competitors, both at home and abroad.
The cash and scrip deal includes Tabcorp paying a 20 per cent premium for each Tatts share and a $500 million share buyback once the merger is completed in the middle of 2017.
The combined company will generate annual revenue of more than $5 billion and dominate Australia's tote betting market by bringing together TAB and the Tatts-owned UniTAB.
Tatts and Tabcorp shareholders will respectively own 58 per cent and 42 per cent of the combined company under a deal unanimously approved by both boards.
"Combining our two complementary businesses will give us a national footprint and could create a pathway to larger wagering pools," said Tabcorp chairman Paula Dwyer, who will chair the combined group.
"We are excited by this opportunity, which we believe will deliver an enhanced wagering experience for our customers and, in turn, will generate stronger returns to the Australian racing industry."
The proposed merger must be approved by shareholders and the competition watchdog, which is already talking with both companies and will launch a public review once it receives a submission.
"Our understanding is the proposed merger will require a public review that will examine a range of potential issues and areas of overlap, with the focus on various gaming and wagering services," the Australian Competition and Consumer Commission said in a statement.
The ACCC blocked Tabcorp's bid for Tatts' wagering business in 2006 but Deutsche Bank analyst Mark Wilson does not anticipate any obstacles this time around.
"We believe the regulatory risks can be overcome by way of providing undertakings to the respective state governments and racing bodies, and we do not believe the ACCC would block such a transaction given the significant changes to the industry since 2006," Mr Wilson wrote in a note.
Both Ms Dwyer and Tatts chairman Harry Boon, who will become a non-executive director, cited overseas competition as a driver for the merger.
"The offshore bookmakers have been consolidating and have been penetrating the domestic market," Mr Boon said.
"The merger of these two businesses creates a stronger platform for us to compete nationally and globally."
Tabcorp chief executive David Attenborough will run the new company, while Tatts chief executive Robbie Cook will leave the business.
"Hundred per cent I would have loved to have run it and I'm disappointed not to be there - absolutely gutted," Mr Cook said.
"But ... there's a billion dollars in shareholder value that's being created and no man should get in the way of a billion dollars."
Tatts shareholders will receive four fifths of a Tabcorp share plus 42.5 cents for each Tatts unit they hold - a 21 per cent premium on Tatts' $3.59 share price prior to the announcement.
After coming out of a trading halt, Tatts shares soared 59 cents, or 16.4 per cent, to $4.18 by 1543 AEDT.
Tabcorp shares were up 16 cents, or 3.3 per cent, at $5.05.
