U.K.'s Prudential Confirms Talks to Sell Online Bank Egg

A.M. Best

Robert O'Connor

January 16, 2004

LONDON, Jan 16, 2004, (A. M. Best via COMTEX) -- A bidding war might be taking shape for Egg plc, the online bank and credit-card operation of Prudential plc, the U.K. insurance and financial-services group.

Prudential (LSE:PRU) has confirmed that it is in talks to sell its controlling share in Egg (LSE:EGG). Estimates of the company's value range as high as 1.6 billion pounds ($1 = 0.55 pounds), or between 180 pence and 200 pence a share. Egg shares went for 160 pence when they were offered on the stock market in June 2000.

Prudential's announcement of the talks didn't come as a great surprise. "I think it's been clear for some time that Prudential have been looking to sell Egg," said Noel Reynolds, a banking analyst with Commerzbank Securities in London.

The main candidate to purchase Egg is thought to be MBNA Corp., the U.S. credit-card issuer that has made strong inroads into the U.K. market in recent years. But other possible contenders, suggested in the press, could be: BNP Paribas, the French bank; National Australia Bank; Royal Bank of Scotland; and U.S.-based Capital One Financial Corp.

Egg still functions as a bank, but credit cards have become its chief activity. Egg's appeal is that it could be integrated easily with established card operations.

At least one other party is thought be looking closely at the potential sale of Egg. The Financial Services Authority is thought to be concerned at the 35% jump in the value of Egg shares that took place just before Prudential announced that it was in talks to sell the company.

Reynolds said he doubts that Egg would make a good acquisition for MBNA. He predicted the ultimate buyer would be a U.K. bank. Reynolds argued that Egg's real value lies not in credit cards but in its banking activities, which, he contends, can provide valuable delivery channels. As an example, he cites Egg's mortgage operation, although it is small. "Because it's got an unusual banking model," Reynolds said, "I can't see an acquirer being able to extract much in the way of cost synergies."

Reynolds also said it's likely the eventual sale price would rise above 200 pence a share, putting the fair value for the stock at 150 pence.

Egg is scheduled to deliver its 2003 results on Feb. 23, but it intends to release a 2003 trading update before that date. Egg's nine-month 2003 U.K. profit of 20 million pounds was canceled out by losses of 20.8 million pounds in France.

Copyright (C) 2004 A.M. Best