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Citigroup: Egg interest could prompt a scramble

12th July 2005
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Reports have suggested that Citigroup is considering a bid for Egg.

In the latest twist in the Egg takeover saga, rumors that Citigroup is considering to bid for Prudential's majority shareholding in Egg are likely to ignite a bidding war. With MBNA currently out of the picture, HBOS, RBS and Capital One are all expected to reaffirm their interest if a bid is forthcoming from Citigroup.

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According to The Observer newspaper in the UK, US banking giant Citigroup [C] is contemplating a GBP1 billion bid for Prudential's [PRU.L] 79% stake in UK lender and credit card issuer, Egg [EGG.L]. It is understood that Citigroup's chief executive, Chuck Prince, is keen to expand the company's European operations through small acquisitions, and Egg would be ideal in this regard.

However, a bid from Citigroup is likely to spark a bidding war. The UK credit card market has become intensely price-competitive in recent years, to the point where achieving scale is crucial to long-term competitiveness. Egg represents one of the few remaining potential acquisition targets of scale in the UK market and, as a result, the list of interested parties is a long one.

HBOS and RBS have been frequently linked with a bid for Egg, as has Capital One, and each is likely to see bid rumors resurface in the next few weeks. MBNA, currently the subject of an acquisition bid itself, is also widely understood to be interested in buying Egg, but will presumably be forced to hold off on any deal for the time being.

Egg appears to be a good fit with Citigroup's current operations. With a limited presence in the UK banking market, acquiring Egg would give Citigroup both an enlarged customer base to which it can cross sell, and also a stronger position in the UK credit card market.

The next few weeks should be interesting for Egg watchers. After months of speculation and counter-speculation, some may view Citigroup's apparent interest as another false dawn for Prudential. However, the Pru is keen to sell what is a non-core part of its business, and this could prove the catalyst for a flurry of bids. Despite the acquisition saga having dragged on for months, Egg still represents too good an opportunity for many issuers to pass up, meaning a deal is all but guaranteed in the near future.
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