The pair, which had already announced an agreement in principle late last month, outlined the merger terms for the creation of Paddy Power Betfair in a new statement.
Betfair investors will receive 0.4254 new shares in the merged firm for each Betfair share, while Paddy Power shareholders will receive a special dividend of 80 million euros ($89.7 million).
The pair hope to achieve annual cost savings of approximately £50 million following the deal.
Paddy Power shareholders will own a 52 percent stake and Betfair the remaining 48 percent in the new company.
Breon Corcoran, current chief executive of Betfair, will assume the same role. Paddy Power chairman Gary McGann will also retain his position within the new firm.
"The merger of Paddy Power and Betfair will create a company of world class capability and people who will deliver substantial up-front synergies and a platform for very exciting business expansion," said McGann.
Paddy Power Betfair will be headquartered in Dublin and will retain a major presence in Britain and Ireland.
Paddy Power Betfair will have combined annual revenues of more than £1.1 billion.
The merger of two big players in the sector comes after rival bookmaker Ladbrokes unveiled plans in July to merge with Gala Coral in a £2.3-billion deal.