The Abbott government’s sale of Medibank Private is likely to be a good opportunity for investors, but bad news for the health insurer’s staff.
Analysts say there will be plenty of market interest in the company when it is publicly floated in the 2014/15 financial year.
The government is likely to offer a relatively cheap price to ensure the initial public offering (IPO) is well received, Invast chief market strategist Peter Esho said.
“The government is mindful of the fact it needs to set a good precedent so it can offload the other assets that are sitting there, like Australia Post,” he said.
“I think it will be a successful IPO.”
IG market strategist Evan Lucas said the healthcare sector was a strong performer in recent times, which would add to investor interest.
Medibank rival NIB has seen its share price rise by more than 30 per cent each year for the past three years.
“There is certainly an appetite for Medibank private,” he said.
Another attraction for investors was the tendency for privatisation of government enterprises to produce greater efficiency, mainly through cost cutting.
“You tend to see staff costs coming off quite heavily and a lot of bureaucracy coming out of the businesses as well,” he said.
“Inside 18 months a business that was maybe struggling under a government arm is all of a sudden very profitable because of those changes that private enterprise can enact,” he said.
Within a few years of its float, Telstra announced plans to sack 16,000 staff, while rail operator Aurizon has axed at least 1,600 jobs since it was sold by the Queensland government in 2010.
Australian investors have traditionally done very well out of government sell-offs in the long-term.
Commonwealth Bank was floated at $5.40 per share in 1991, and is today trading at around $76 a share, having paid out a considerable amount in dividends along the way.
Vaccine maker CSL, which was floated at $2.30 per share in 1994, now trades above $70 per share.
An obvious exception is the second offering of shares in Telstra at $7.40 each, which then fell sharply.
Fifteen years on, the shares are still worth less than investors paid for them, though Mr Lucas said those who bought into the first and third Telstra offerings fared much better.