Prudential to buy out Egg

Prudential to buy out Egg

UK insurance group Prudential is to buy the 22% stake it doesn't already own in British Internet bank Egg.

Under the deal, Egg shareholders will receive 0.2237 new Prudential shares for each Egg share they hold. The offer values the Web bank at £973 million, or 118 pence per share - a 15% premium to the closing share price on Wednesday.

Egg shares surged 13.40% on the news to 116.25 pence by mid-day.

Prudential chief executive Mark Tucker said in October that Prudential would keep its 79% stake in Egg - ending months of uncertainty over the future of Britain biggest Internet bank - and also hinted that a buy-out was possible.

In today's statement, Tucker says the acquisition will enable the group to realise pre-tax cost savings of around £40 million by the end of 2007. Prudential will also use the Egg business to target business opportunities outside of its core insurance markets. The insurer plans to sell its savings and healthcare products to Egg's customer base - including a Prudential branded mortgage - and sell Egg loans and credit cards to its own customers.

Tucker says the deal "provides the group with significantly greater opportunities across the spectrum of personal financial services in the UK than is available to them operating in isolation".

The group originally put Egg up for sale in January 2004 following speculation that it had received a bid from US credit card company MBNA. Since then a plethora of other companies have been rumoured to be interested in the Web bank, including Citibank, HSBC, Lloyds TSB, Royal Bank of Scotland, Capital One and JPMorgan Chase.

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