After rejecting a 'speculative' bid for its UK online banking and cards business Egg in December 2006, UK life insurance provider Prudential has now agreed to sell the flagging business to US banking giant Citigroup for GBP575 million in cash.
Prudential has also forged a preliminary UK distribution agreement with Citigroup through which it would provide life and pensions products to Egg’s customer base for a five-year period. The insurer commented that this would allow it to retain access to Egg’s direct distribution model and its customer base of over three million.
Mark Tucker, group chief executive of Prudential, commented: The sale of Egg to Citigroup realizes greater value for our shareholders than retaining the business within the group. Citigroup is the largest credit card issuer in the world and sees enormous opportunities to develop Egg’s business in the UK.
Following Egg’s de-listing in February 2006, the business has encountered a number of difficulties, including incurring losses of up to GBP150 million through its attempted expansion into France. According to Prudential, Egg’s 2006 operating losses before tax are estimated to be GBP145 million.
According to the BBC, prior to accepting this latest bid, Prudential had revealed that trading conditions at Egg had deteriorated since October 2006 as a result of worsening credit experience and lower levels of lending than anticipated.
Prudential has also revealed that Citigroup has selected it as a strategic provider for the distribution of life insurance products to the bank’s consumer banking customers in Thailand, Indonesia and the Philippines.
The transaction, which is subject to regulatory approval, is expected to be completed by the end of April 2007. Prudential has commented that the sale will enhance earnings per share in 2007 and that the proceeds will be used to reduce net debt.