CVC may bid for gambling firm Betfair

A Betfair stunt during the last general election, showing David Cameron, Gordon Brown and Nick Clegg. The online exchange allows gamblers to bet against each other. Photograph: Ken Lennox

The private equity firm that owns Formula One motor racing is mulling a potential takeover bid for the internet gambling group Betfair.

Shares in the FTSE-250 website shot up by 12% on Monday as CVC Capital Partners said it was in talks with a Betfair investor about making a joint offer for the firm, which has a stock market value of about 800m. Betfair operates an online exchange that allows gamblers to bet against each other but its ambition to expand beyond the UK and Ireland has been hampered by regulatory and tax barriers.

In a statement, the private equity group said: "CVC … confirms that it has had preliminary discussions with Richard Koch, Antony Ball and partners regarding options in respect of Betfair, which could include an offer for Betfair by funds advised by CVC together with Richard Koch, Antony Ball and partners."

Koch, a co-founder of strategy consultancy LEK Consulting, holds a 6.5% stake in Betfair. Ball is a non-executive director at the Luxembourg-listed investment group Brait and is the co-founder of its private equity business.

However, insiders questioned whether any move for Betfair could succeed. Despite its 2010 flotation, a large proportion of the shares are still owned by the co-founders, Ed Wray and Andrew "Bert" Black – who collectively hold about 19% of the company – and staff or early investors, many of whom are thought to be unwilling to sell unless they receive a knockout bid.

Wray, who owns 11% of the shares, said: "Since the float I've been buying shares rather than selling. I hired [new chief executive] Breon [Corcoran]. I think he's a great chief executive doing a great job and tackling the things that need to be tackled."

Another long-time shareholder added: "I can't see Ed and Bert selling all of their stakes at these levels. They wanted Breon and selling now would indicate they had no confidence on where the business is or where it is going … If [CVC] think they are going to get it at around 7.50 a share, then they're dreaming."

Black has numerous other projects that require funding and in 2011 sold shares worth about 1.5m as he subscribed to a share issue at Hydrodec Group, an Aim-listed "clean technology" company where he serves as a non-executive director and where he was investing a further 1.7m into the company. Wray has a number of small early-stage investments.

CVC sources suggested that existing shareholders would be able to remain involved in a private equity controlled group, although CVC would still require 75% of the shares to take the company private under stock market rules.

Still, despite no bid being made, the news proved a fillip for Betfair's shares, which have languished since joining the London Stock Exchange two and a half years ago. The company, which was originally sold to investors as having the potential to grow massively by launching its betting technology internationally, has ended up doing the opposite and pulled out of markets where gambling regulations are unclear.

As a result, shares in Betfair had plummeted to a low of 571p – well below the 13 a share the company listed at in October 2010. The shares closed up 82.5p at 782p.

Corcoran, who joined Betfair as chief executive from the Irish bookmaker Paddy Power last year, said shortly after his appointment that Betfair had "lost its way somewhat". Corcoran has since cut costs, withdrawn from certain foreign markets and non-core businesses and acquired the customers of the online bookie Blue Square, but his efforts have so far not been reflected in an improved share price. The gains in on Monday effect put the shares back to where they were when he joined the company.

Gerald Corbett, the chairman, reiterated that a new management team was already attempting to transform the company and hinted that only a stellar bid would persuade the board to recommend shareholders to sell.

He said: "You don't typically sell your company four months after your new chief executive has announced his plans to the City and is busy implementing them, but of course we will look at anything serious put forward."