It’s official. After much speculation, Tatts Group Limited (ASX: TTS) and Tabcorp Holdings Limited (ASX: TAH) have announced that the two companies have reached an agreement to merge. The companies’ share price both jumped more than 2% in early trading.

The agreement means the two companies will combine via a Tatts Scheme of Arrangement in which the shareholders of Tatts will receive 0.80 Tabcorp shares plus 42.5 cents cash for each Tatts share held.

Tabcorp’s shares last closed at $4.89, which means that shareholders of Tatts can expect to receive $4.34 per share from the agreement. That’s a premium of approximately 20.8% on the last close price of Tatts’ shares.

The two companies expect the transaction to create a “world-class, diversified gambling entertainment group, with a pro forma enterprise value of approximately $11.3 billion, a national footprint and a diverse suite of product offerings across wagering, media, lotteries, Keno and gaming services.”

The combined entity is expected to deliver revenue of more than $5 billion, earnings before interest, tax, depreciation, and amortisation (EBITDA) of over $1 billion, and result in a strong balance sheet with an investment grade credit rating.

Furthermore, significant synergies are expected to be generated. Management has estimated at least $130 million of annual EBITDA synergies and business improvements from the deal.

The transaction is not only expected to be earnings accretive (before significant items) but also value accretive for both Tabcorp and Tatts shareholders.

According to the release, Tatts intends to pay its shareholders a fully-franked special dividend of 20 cents per share immediately prior to the transaction’s implementation, in lieu of part of the cash consideration.

Tabcorp’s chairman Paula Dwyer had this to say on the deal:

In today’s rapidly changing landscape, bringing together our businesses will create a strong and diversified business that is well placed to invest, innovate and compete, both in Australia and globally.

I would have to agree. This deal makes a lot of sense, and I expect both sets of shareholders should be feeling quite pleased with it.

But there is still a long way to go. The companies aim for the transaction to complete by mid-2017 – if the merger receives approval from shareholders and of course the ACCC.

If these two companies aren't for you then I would highly recommend an investment in these fast-growing companies instead. Each could be a big boost to your portfolio in the coming months if you ask me.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.