MENU

Abbott: Medibank Private to go under the hammer

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.

Foolish takeaway

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.

Every Aussie investor knows Telstra, but only the smart money is on the move now… Discover whether you should buy Telstra shares in our brand-new report, written by a top Motley Fool analyst. It’s free, click here for your instant download.

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur owns shares in NIB Holdings.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.