The Financial Services Authority was last night investigating trading in Egg shares after a series of heavy trades prompted the internet bank's parent company, the insurer Prudential, to disclose that a bid approach had been made.
Shares in Egg closed up 35 per cent at 169p, valuing the company at £1.4bn, after 6m shares changed hands - three times the normal volume.
The trades included three massive tranches of shares bought yesterday morning, ahead of Prudential's announcement to the stock exchange late in the afternoon.
The FSA never comments on individual companies, but it is thought to have launched an investigation into the irregular trades, which saw blocks of 650,000, 500,000 and 400,000 shares traded by 10.15am when the price was about 124p.
Prudential has been approached by several parties about selling its 79 per cent holding in Egg. US credit card provider MBNA is thought to be interested, though it is not the only major player. Another possible bidder is Capital One.
The insurer said yesterday: "Prudential confirms it is in discussions regarding a possible transaction with respect to its 79 per cent shareholding in Egg. Discussions are at a preliminary stage."
Analysts thought a buyer would have to pay £2 a share, a substantial premium on the price Egg has been trading at and significantly higher than the 160p it floated at in June 2000.
While there has been speculation for many months that Prudential would sell Egg, the auction appears to have begun in earnest after Egg said last October it was seeking a partner to share the burden of carrying on with its troubled French business. The bank then made another statement delaying an announcement on its future strategy in France, saying it was still talking to potential partners. Those talks are thought to have sparked wider interest in the whole business.
Prudential's shares rose 5 per cent to 490.5p, as the City welcomed the prospect of a capital injection into the insurer.
While Prudential has some of the most solid reserves of capital in the insurance sector, analysts believe it could use extra money to plough into its Asian business, which is growing rapidly and becoming the powerhouse of the group.
Prudential has held off from selling Egg because it has enjoyed the prestige of owning a modern internet bank which has succeeded in building a large credit card business in just a few years, and which also has a high profile brand. A sale will have almost no ramifications for insurance sales in the wider Prudential group, as the insurer does not cross-sell products through Egg.
Egg's foray into France cost the company £120m in a year and a half. The bank badly underestimated how difficult it would be to break into the country's financial services sector. However, the business is respected in the City for having grown quickly in the UK despite tough market conditions.Reuse content