Medibank Private is a strong, reputable brand name in the health insurance industry with a dominant 30 percent market share position.
BUPA comes in second with 27-28 percent and NIB Holdings has approximately seven percent.
The Federal Government says that the Medibank Private Share Initial Private Offering [IPO] offers retail investors an opportunity to buy into a solid, defensive company that provides reliable returns.
Finance Minister Mathias Cormann has talked down the prospect of future higher premiums for Medibank policy holders, saying the sale would not drive these up due to the health insurance market being well-regulated with 34 private health funds.
Not widely known, Senator Cormann did a stint in a range of senior management roles at the major WA health insurer HBF from 2003, before entering the Senate in 2007.
The Howard Government announced in 2006 that it would sell Medibank Private if re-elected at the 2007 election.
But then Labor leader Kevin Rudd pledged to retain public ownership because of union opposition to privatisation.
Although sale plans were consequently shelved the Rudd Government, in 2009, converted Medibank Private from a not-for-profit to a profit maker, from which it raised $1.36 billion in dividends and taxes.
The Medibank IPO is expected to raise sale proceeds of $4 billion which will go into the Abbott Government’s asset recycling fund to help finance new infrastructure investments.
The sale will end the Government’s conflict of interest position whereby it owns the largest health insurance operator, while simultaneously regulating it.
While there is a lack of informed independent research on the Medibank Private IPO, there are a number of general observations that can be made.
While private equity IPO’s can take advantage of new investors, government privatisations tend to take advantage of the taxpayer, by selling too cheaply.
Examples include Commonwealth Bank and Queensland Rail National [now trading as Aurizon], that were great investments.
However, Qantas proved to be a disaster.
Telstra disappointed from 2000, but has performed strongly since late 2010.
New management is likely to achieve cost savings and productivity gains, benefiting the business and its new shareholders.
While enjoying economies of scale due to size, Medibank Private Managing Director George Savvides concedes his fund is less profitable and has higher costs than its closest competitors.
Following listing, Medibank Private is likely to be better managed with higher margins.
As every broker and his hound will be benefiting from the IPO, the research from the broking houses will be predictably positive, creating its own momentum for the float.
In the first instance, the success of an IPO has more to do with supply and demand.
Chief executive of health insurer NIB Holdings, Mark Fitzgibbon, has backed the privatisation of rival Medibank Private.
He said it was “difficult” to predict what effect Medibank’s privatisation would have on the sector, but admitted “Medibank Private was already a well-run, tough competitor”.
Mr Fitzgibbon agreed a listed Medibank might look to acquiring competitors “on the basis that as a private company it has the ability to raise capital.
Under government ownership, Medibank was constrained in its ability to raise capital.
Post-July 2008, NIB Holdings has been a great investment, serving as an example of the stability of a long-term investment in the private health market.
If Medibank Private replicates NIB Holdings it should sell easily.
The Government has begun a pre-registration process that’s due to close on October 15th, with listing expected in December.
The Medibank Private PDS is due to for release mid-October, with Deutsche Bank, Goldman Sachs and Macquarie Capital heading up the IPO.
Australian residents who pre-register to receive a prospectus and then apply for shares can receive a preferential allocation of shares.
By pre-registering now you may be allocated more shares than those who do not pre-register.
Anyone who does not pre-register can still apply for shares.
Medibank Private policy holders also stand to benefit since they can receive a greater preferential allocation than non-policy holders when pre-registering for the shares.
Pre-register at https://www.medibankprivateshareoffer.com.au for a higher allocation of stock, if you eventually choose to invest.
While pre-registration is no guarantee of success, it is non-obligatory, so no harm done.
Note: When registering self managed super funds, ensure that your details are 100 percent accurate, for share registry reasons. It is possible to register in your personal name, buy the shares & then contribute then “in-species” to your Self Managed Super Fund at a future date – however sale of personal shares to a super fund is likely to attract capital gains tax.