Fool's Eye View

[ June 12, 2000 ]

The Egg is Hatched

By Rob Davies (TMFEssex)

Colchester, Essex -- Allocation of shares in Egg (LSE: EGG), the Internet banking subsidiary of the Prudential (LSE: PRU), was announced this morning. The 147m shares are being priced at 160p, generatating £150m for the new bank and £86m for its major shareholder. The Pru obviously could not resist digging its fingers into this little pot. Nevertheless, a market capitalisation of £1.3b for this loss-making bank is a lot lower than the numbers that were being talked of, close to £4b, not so long ago.

Retail investors -- well, actually only the existing Egg customers that were allowed to apply -- will do reasonably well out of the IPO (initial public offering). Anyone who applied for £500 or £200 worth will get a full allocation and those who went the whole hog and put in for £1,000 will get a worthwhile £752-worth. As early trading kicked off at 170p that gives them a stunning gain of £47, modest but a whole lot better than some other Internet floats we could think of.

Apparently 85,000 retail investors applied for £70m worth of stock. If it hadn't been for the silly rule limiting applicants to a maximum of £1,000 per application the whole issue could have been satisfied by the retail market, rather than the 24% it actually generated. If they had done that we would have had something akin to the situation with Halifax (LSE: HFX) when it floated. Institutions would have had no stock, but the indices would obviously have to take account of the new issue. Therefore the big funds would have been massive bidders for the shares, ensuring a huge premium for the new shares.

Of course over time, as with the Halifax, the shares would eventually stabilise at a lower level. But a premium for owning something that others want is exactly what finance is all about.

If Standard Life ever gets around to floating a similar situation would apply. But the big difference is that we are looking at company with a valuation in excess of £12b, and possibly a lot more. Ten times the value of Egg.

In the meantime we have to put up with a situation in which the city looks after itself. Presumably the Prudential, as a big institution itself, didn't want to rock the boat and disturb its peers.

Now all we have to do is guess which company Egg buys first: for paper, of course.

Related Links

• Egg discussion board
• Stock Ideas Special feature on the Egg flotation
• 10th May (pre-flotation) interview with Mike Harris, Egg CEO