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Egg: takeover tussle comes back to the boil

6th June 2005

Egg is likely to become the subject of a new bidding war, with US MBNA reportedly hiring Lehman Brothers to help prepare a bid in the region of GBP900 million for the credit card issuer. This is an important deal for the UK credit card market, as Egg is one of the last few independent players of scale in the sector.

According to press reports, MBNA [KRB] has hired Lehman Brothers to help it prepare a GBP900 million bid for Prudential's [PRU.L] 79% stake in Egg. This comes less than 10 months after then Prudential chief executive Jonathan Bloomer officially announced that it was no longer negotiating a sale. Many of the other previous bidders for the card issuer, rumored to include JP Morgan, RBS Group and Capital One, are expected to renew their attempts to acquire the card issuer in the near future.

The chances of a deal being completed are far higher now than at that the previous attempt. It is understood that Mr Bloomer was unwilling to accept less than around GBP1.3 billion at the time, and this was at the heart of the collapse of the previous sale negotiations. New chief executive Mark Tucker is believed to be more interested in securing the sale of what is a non-core part of Prudential's business.

However, given the previous valuation placed on the business and the likelihood of other, similarly deep-pocketed, bidders entering the fray, it would be a surprise if Prudential accepts a price of just GBP900 million.

What exactly is at stake? In an increasingly concentrated credit card market - the top five players currently controlled more than 70% of the market by cards in issue at the end of 2004 - Egg, with a market share of 4.4%, is one of the last few remaining big card books available, and this is what makes it an attractive proposition. Declining margins have made operational scale crucial in the UK market and acquiring a player of the size of Egg would provide a significant boost to the winning bidder.

The UK card market has remained relatively quiet over the last two years in terms of consolidation, as issuers have faced up to the costs of regulatory compliance and the migration to EMV. However, now that the dust has begun to settle on these issues, the pace of acquisitive activity is likely to pick up.

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