The bid proposal comes from CVC Capital Partners, the buyout group behind Formula 1 motor racing, alongside other investors. Betfair said it had received a preliminary proposal on Friday from CVC, Richard Koch, Antony Ball and partners offering 880p per share.
Betfair stock, which was trading at 700p before CVC said a week ago it was considering a bid, closed at 838.5p last night, a discount to CVC’s terms but up four per cent on the day, indicating investors expect further twists in the takeover tussle.
Analyst Nick Batram, at Peel Hunt, said: “CVC’s opening gambit, while not a knock-out bid, is not too far away from a valuation that would cause management and investors cause for serious consideration.
“The risk for CVC and its partners is that they are merely a stalking horse for a potential industry buyer who could pay much more,” he added.
Betfair said its board had reviewed the proposal with its advisers and “rejected it on the basis that it fundamentally undervalues the company and its attractive prospects, and is highly conditional”.
Betfair operates an online exchange that allows gamblers to bet against each other.
Since joining the London stock exchange three years ago, it has lost ground to competitors at home and is pulling out of markets where gambling regulations are unclear, which provide almost a quarter of its revenue.
CVC last week said it had held preliminary discussions with Mr Koch, Mr Ball and other partners about making an offer.
Mr Koch, a co-founder of international strategy consultancy LEK Consulting, holds a 6.5 per cent stake in Betfair.
A former management consultant, he claims to have “made a fortune” from private equity investments including Filofax and Plymouth Gin.
Mr Ball is a non-executive director at Luxembourg-listed investment group Brait and is the co-founder of its private equity business.
He backed the buyout of frozen food chain Iceland in 2012.
Betfair backed its “unique” business and prospects after rejecting the takeover approach.
The company said it is going through one of the “most exciting phases in its development”, thanks to a new strategy revealed in December and the appointment of a new management team led by chief executive Breon Corcoran.
Chairman Gerald Corbett said: “We have a unique business with a market position, profitability, cash flow and prospects that this proposal fails to recognise.”
Betfair’s betting exchange works by matching punters and allowing them to bet against each other, which it says eliminates the need for a traditional bookmaker.
It charges a commission on the bets and the company processes seven million transactions a day.
CVC owns luggage firm Samsonite and also has stakes in Brit Insurance and theme park giant Merlin Entertainments.
Last week it said there was no certainty it would make an offer.