Egg shares plummet as Prudential abandons sale talks

Shares in Egg, the internet bank, collapsed by more than a quarter to 104p yesterday after its parent, Prudential, said it had pulled out of talks to sell its stake in the business.

Shares in Egg, the internet bank, collapsed by more than a quarter to 104p yesterday after its parent, Prudential, said it had pulled out of talks to sell its stake in the business. Prudential shares fell 5.25p to 447p in disappointment that it will not be able to unlock its 79 per cent holding, currently worth £1bn. Egg floated on the stock market four years ago, so the other 21 per cent of the shares are held by outside investors.

The decision to abandon the sale was seen as a major embarrassment for the Pru's chief executive Jonathan Bloomer, who has not had an easy time as head of the insurer.

The sale plan was prompted by the problems Egg was having in its French operation, which it has recently decided to close. Last October Egg said the French operation would require "a greater level of investment than Egg was prepared to undertake on a standalone basis".

In January, Prudential said it was "in preliminary discussions regarding a possible transaction with respect to its shareholding in Egg". A fortnight later it said it had received "unsolicited indications of interest from a number of parties".

These statements sent the Egg share price hurtling up to a peak of 194p, nearly twice their current level. Prudential said that none of the potential bidders was going to reach its own valuation of Egg.

Egg's chief executive Paul Gratton last month said the bank had been forced to confront "significant uncertainty" in the business because of the distraction of being put up for sale. Among the potential buyers was Royal Bank of Scotland, but yesterday Royal Bank's chief executive, Sir Fred Goodwin, referred all inquiries to Jonathan Bloomer, his counterpart at Prudential.

While not confirming Royal Bank's interest, Mr Bloomer said: "We had an obligation to explore all the options for the business following the approaches we received. Our objective is to ensure that our shareholders benefit in full from the value inherent in Egg and we have concluded shareholders' interests are best served by retaining our Egg holding.

"Egg has brought significant change to the market, with a track record of delivering innovative products and services to customers. It is a very successful business in the UK with significant potential to grow in value."

But Mr Bloomer's critics see this as the latest in a series of mishaps during his time at Prudential. These include the purchase of M&G, the abortive attempt at taking over AIG in the US, a fat-cat pay deal when Pru policyholders were suffering, the departure of Mark Tucker as head of the Asian business, and a fall in profits last year which led to the group's first dividend cut since 1914.

Mr Bloomer said yesterday: "Spending time on the Egg talks and going through the complete process was frustrating, but it's one of those things. At the end of the day if you don't get buyers with the right view of value, you must keep the shareholding. We were quite realistic about it. Some of the numbers bandied about were not viable, but we had a range in mind and for different reasons buyers didn't get up to that range. It was not down to any problems at Egg: nothing in the due diligence surprised us."

Prudential floated 21 per cent of Egg on the stock market in June 2000 at 160p a share. The shares reached nearly 200p when talks were first announced.

Mr Bloomer said that from now on Egg would focus on the UK market by growing its existing business and extending its product range. It already distributes Prudential insurance policies and M&G funds. He said he had no current plans to do anything with the Egg stake. He would talk to any bidders who came forward, but he did not expect anyone to do so in the near future.

Jonathan's bloomers

2001: Bid for American General fails after Prudential trumped by US rival, AIG. Collects record £325m break fee as compensation.

2002: Share-holders jettison proposed new pay deal, worth £4.6m a year to chief executive at a time when bonuses were being cut.

2004: Pru cuts its dividend for the first time since 1914 after profits fall by 27 per cent to £794m.