Cracks begin to show in the Pru's Egg auction

Prudential is floundering in its attempt to sell Egg, the internet bank, as potential buyers have refused to pay the high price the giant life and general insurer is demanding.

A number of people close to the auction of Egg - which has been going on since January - said it was not proceeding well because of ongoing disagreements about the valuation of the business, which provides credit cards and other financial services over the telephone and internet.

A string of companies have expressed interest in buying Prudential's 79 per cent stake in Egg, including the US credit card giants MBNA and Capital One and, in the UK, Royal Bank of Scotland.

RBS entered into detailed discussions with Prudential and was very close to securing a deal. However, it subsequently pulled out because the two sides could not reach an agreement about price.

Prudential restarted the auction, which is being handled by Goldman Sachs, in April with MBNA. While Prudential is thought to have reduced its initial price target of £1.6bn to about £1.4bn, those talks have also hit difficulties because the US company was haggling about the price.

Last week Capital One emerged publicly as the latest contender, with sources saying the company was prepared to pay about £1.4bn for Egg - a premium to the 160p price at which Egg floated in June 2000.

Prudential, which first said it was reviewing its options over Egg in October, is under increased pressure to tie up a deal. The City will be focusing on whether it has made progress when it announces interim results in three weeks' time.

Egg is also unveiling its half-year results on 22 July. There has been speculation that potentially interested buyers are hanging back to see the results before making up their minds about what they would be prepared to pay for Egg.

A spokesperson for Prudential said: "The process continues and is in a healthy condition." However, there is a feeling among Prudential's inner circles that the auction is in considerable difficulty.

Egg has grown rapidly to become one of the UK's largest providers of credit cards, with three million cardholders. But its market is becoming increasingly competitive, with both Barclaycard - the UK's largest credit card brand - and Halifax both recently improving their offering.

MBNA and Capital One would also have a problem justifying a high price for Egg because they would probably want to sell on its book of savings, an unusual move and difficult to put a price on.

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