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(Corrects paragraph 8 to show Jason Ader's Spring Owl is Bwin's fourth biggest shareholder, not second biggest)
* 888 and GVC had submitted bids for Bwin
* Bwin opts for 888 offer over higher GVC bid
* Firms say will add scale, deliver cost and revenue benefits
By Neil Maidment
LONDON, July 17 (Reuters) - Online casino and poker firm 888 won the battle for larger rival Bwin.party Digital Entertainment on Friday, clinching a cash and stock deal worth almost 900 million pounds ($1.4 billion).
888, which itself rejected a takeover by Britain's biggest bookmaker William Hill in February, had been battling against a 908 million pound offer from GVC Holdings for Bwin, which put itself up for sale last year.
The recommended deal is the latest in a flurry of M&A activity in the industry, a trend set to continue as firms expand to help offset increasing taxes and tighter regulation and fund higher marketing and technology spend.
"We believe the deal creates one of the world's leading online gaming operators," 888's Executive Chairman Brian Mattingley told Reuters.
"It's all about scale... When you've got critical mass you can ride storms and take advantage of opportunities as they come along," he added.
888's offer of 104.09 pence per share, made up of 39.45p in cash and 0.404 new 888 shares, is 16.4 percent higher than Bwin's share price of 89.40p before talks began on May 14.
While lower than the 110p face value of GVC's rival offer, Bwin said it carried fewer risks, with better prospects and an experienced management team all factors.
The deal was welcomed by U.S. activist investor Jason Ader whose Spring Owl vehicle is Bwin's fourth biggest shareholder.
"I believe not only are 888 the best buyer for this company but that its management team will realise significant long-term synergy value for our shareholders with the least amount of execution and regulatory risk," Ader said in a statement.
Shares in 888 were up more than 10 percent by 1250 GMT. Bwin, up 30 percent in three months, gained 2.7 percent to 105.7 pence.
888, which offers casino, poker and bingo games, has enjoyed strong growth as gamblers move online via tablets and mobiles. In acquiring Bwin, the firm will significantly boost revenues from its fledgling sports betting business, and can apply its stronger technology platform and management to Bwin's business.
The two companies said the deal, which would be earnings enhancing in its first full-year, would lead to cost benefits of at least $70 million per annum by the end of 2018 by removing duplicated costs, technology and administration fees.
888 currently has a market capitalisation of 572 million pounds versus 848 million for Bwin, which has struggled with the decline of regulated poker markets in Europe and to make cost savings since its creation via a merger of sports betting group Bwin and online poker group PartyGaming in 2011.
A combined group will have revenue of over $1 billion and be a leading online gambling operator in Belgium, Denmark, Germany, Italy, Spain and the UK. Bwin shareholders, who will be able to vary the amount they receive in cash and new 888 shares under a "mix and match" facility, will own 48.9 percent of the new firm.
The two companies said they would also considering spinning-off Bwin.party's 'Studio's technology business.
$1 = 0.6401 pounds Additional reporting by Mamidipudi Soumithri in Bengaluru; Editing by Anupama Dwivedi and Keith Weir