* GVC wins Bwin battle with 1.1 billion-pound offer
* 888 ends pursuit of Bwin, could become target itself
* GVC sees annual cost savings of 125 mln euros (Adds comment in paragraph 12 from U.S. activist shareholder inBwin)
By Neil Maidment and Aastha Agnihotri
LONDON, Sept 4 (Reuters) - UK-listed Bwin.party ditched an agreed deal with 888 on Friday in favour of ahigher 1.1 billion-pound ($1.7 billion) offer from GVC Holdings, creating a sports betting heavyweight in a sector beingreshaped by consolidation.
GVC and 888 have spent months battling for larger rival Bwinin one of a number of deals being thrashed out in the industryas firms try to bulk up in response to higher tax bills andtighter regulation in Britain and continental Europe.
888 said it could not justify making a higher offer,signalling victory for GVC.
Sports betting will comprise around 70 percent of theenlarged group's revenue, with the firm expected to take over4.5 billion euros ($5 billion) in sports wagers a year.
"I think unless you have scale you are going to struggle tocompete," GVC Chief Executive Kenny Alexander, who will lead thenew group, told Reuters.
"In combining GVC and Bwin we will create one of the marketleaders in online sports betting... able to compete in this newlandscape."
Bwin said GVC's higher offer as well as its track record ofintegrating acquisitions, such as that of Sportingbet in 2013,and a higher expected cost savings were all factors forswitching its support. Savings are estimated at 125 millioneuros annually by 2017.
Bwin, itself created by a merger announced in 2011, hadrecommended a 900 million pound offer from 888 in July over ahigher and more complex GVC bid.
However GVC worked to ease Bwin concerns around itsfinancing and savings projections and an improved offer wasenough to see off an increased 888 bid.
888 BECOMES TARGET?
Bwin Chairman Philip Yea told reporters some of itsinvestors had preferred an 888 deal but that it was very hopefulof gaining the necessary support for the GVC offer.
"There was a pretty even split of those (shareholders) thatexpressed views one way or the other. But we also had asignificant block of shares that was happy to support the boardon its deliberations," Yea said.
U.S. activist investor Jason Ader, whose SpringOwl vehicleis among Bwin's biggest shareholders, with a stake of just over5 percent, said via email that he was "very satisfied" with theoutcome and the premium GVC was offering represented "the bestvalue for all shareholders".
Ader has in the past publicly and repeatedly supported the888 bid over GVC's.
The deal will place further pressure on 888 and William Hill, whose position as Britain's leading bookmaker has comeunder been threat from this year's consolidation. The firm had abid for 888 turned down in February.
"For 888, this is a blow, given a strong strategic fitbetween the businesses, and the desire to build scale in aconsolidating market," Canaccord Genuity analysts wrote in anote.
Leading gambling companies Paddy Power and Betfair agreed a merger in principle last month, whileLadbrokes and Gala Coral have struck a similar deal.
GVC's offer of 25 pence in cash and 0.231 new GVC sharesworks out to about 129.64 pence per Bwin share based on Thursday close. 888's latest cash and shares offer had a valueat about 115p, two sources familiar with the matter said.
Bwin's stock traded 4 percent lower at 110.4p by 1516 GMT,with GVC shares down 3.9 percent. 888 was up 1.5 percent,reversing an initial fall.($1 = 0.6569 pounds) (Editing by Keith Weir and Greg Mahlich)
