Opposition leader Tony Abbott has dusted off the 2010 Coalition Economic Action Plan, announcing that if he becomes prime minister later this year he will sell government-owned health insurer Medibank Private.
With over 3.7 million policy holders, Medibank Private is a major player in the Australian health insurance market. In 2010 the Coalition believed they could raise around $4 billion from the sale of Medibank Private — recent news reports seem to suggest this figure would still be in the ball park today. Whether the sales process would involve a trade sale or public float is presently unclear and would most likely depend on the level of perceived interest and the investment climate at the time.
The only recent comparable public listing of a health insurer is NIB Holdings (ASX: NHF). NIB has more than 900,000 policy holders and a market capitalisation approaching $1 billion. The company has had a stellar run since listing in 2007 with its share price appreciating 84%, while the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is off 24% over the same period, providing an outstanding return to shareholders.
Should Medibank go to a public float there are reasons to consider getting on board. Shareholders in many previously government-owned businesses have done very well out of privatisation. Historic examples include Commonwealth Bank (ASX: CBA), AMP (ASX: AMP) and CSL (ASX: CSL). More recently, the Queensland rail freight business Aurizon Holdings (ASX: AZJ) has also significantly outperformed the index since its listing. Of course the major detractor has been Telstra (ASX: TLS), in particular second tranche (T2) investors, who at the $7.40 purchase price have suffered the worst with underperformance of approximately 100% compared with the index.
Given that Abbott was a member of the Howard Government that sold investors T2, which investors are still underwater on, it is a timely reminder that if the opportunity to invest in Medibank Private occurs, investors should, as always, question whether the asking price is fair and reasonable.
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