DataRoom AM: Medibank buzz

The wheels are turning on a sale of Medibank Private, while mooted Pepperstone and Freelancer floats heating up the IPO market.

If the bookbuild for the biggest IPO in Australia and New Zealand goes off without a hitch, Prime Minister Tony Abbott has declared a desire to offload Medibank Private. So how much is it worth? And will it float or will a trade sale be preferred by the government?

Meanwhile, Pepperstone Financial appears on the cusp of following rival OzForex to the ASX, Freelancer chooses a lead advisor for its 2014 IPO, Vocation edges closer to its listing and Boral pursues another deal with a rival firm.

Medibank Private, Lazard

Upon the election of a Coalition government, attention in the investment banking community quickly turned to the strong prospect of privatisations. Australia Post and Medibank Private were considered the jewels in the crown of potential options, but while the government has been unwilling to entertain suggestions of an Australia Post sale, it’s a different story with Medibank.

"The only privatisation that we've got slated is Medibank Private," Tony Abbott told 3AW yesterday, while noting the government would be guided by the Commission of Audit.

Former prime minister John Howard twice pursued plans to sell the health insurer, but it was taken off the agenda by Kevin Rudd after his election victory in 2007. Then shadow treasurer Joe Hockey brought it back as a talking point in 2010, when announcing an Abbott government would sell the group should it win power.

Assuming the government proceeds with the plan, there are two key questions to be answered. Firstly, how much is it worth?

Hockey indicated a sale could reap between $3.5 and $4.5 billion back in 2010, while Labor insisted a little over $2 billion was a more likely target. Current media reports are pointing to a figure of $4 billion, though that may be on the upper side of its worth.

Pricing at 15 times earnings would see a valuation of around $3.5 billion, which seems about right.

The other question raised is whether the government will pursue a sale or a float.

A sale could draw significant interest given there will be many Medibank rivals keen to get their hands on the asset, while a float would be well timed given the recent froth in the IPO market.

To tackle this dilemma, the government will appoint advisers to a scoping study, which will see the wheels turning on the biggest privatisation since Telstra before Christmas.

Given Lazard conducted the most recent scoping studies on the business, it is considered a frontrunner for the highly sought-after role.

According to The Australian, the timing for privatisation will be late next year or early 2015.

IPO market, Pepperstone Financial, OzForex, Freelancer, Vocation, iBuy

Medibank isn’t the only new float mooted, with Australia’s largest foreign exchange services group, Pepperstone Financial, emboldened by the market’s affections for rival broker OzForex.

OzForex made a sensational debut on the ASX earlier this month, gaining close to 30 per cent on its listing day and remaining strong ever since. Its acceptance from investors has been the catalyst for a wave of new activity in the IPO market and Pepperstone is likely to follow suit, according to the Wall Street Journal.

The broker, which handles $US71 billion worth of trades every month, has hired New York-based Berkshire Capital to advise on a possible sale or listing.

Pepperstone’s chief executive Owen Kerr told the WSJ that the company would also weigh up the prospect of listing on the NYSE, the NASDAQ or Hong Kong Stock Exchange in preference to the ASX.

Meanwhile, fellow IPO candidate Freelancer has opted for a boutique advisory firm to lead it toward a float early next year. The Matt Barrie-led company has plumped for KTM Capital in a coup for the Sydney-based adviser, despite interest from the likes of Macquarie Bank.

The company will offer 30 million shares at 50 cents each, raising $15 million in what Barrie describes as a “quick and straight forward IPO”. It will value the group at $218 million with Barrie remaining the largest shareholder with 46 per cent of the company.

The high valuation for the online job outsourcing marketplace has encouraged the owners of online retailer iBuy to pursue a listing before Christmas that could value the company around $100 million, according to The Australian Financial Review.

Cannacord Genuity has landed the role of lead advisor.

Elsewhere, the listing of education and training group Vocation is on track, with pre-marketing research being released today, according to the AFR. One of the lead managers, UBS, has put forward an upper valuation of $400 million.

Meridian Energy

The NZ government has successfully sold down 49 per cent of Meridian Energy, albeit at the lower end of the range. The move will raise $NZ1.88 billion ($A1.64 billion) for government coffers and value the business at $NZ3.84 billion.

While the NZ government has received a significant shot in the arm, the biggest winners are likely lead advisors Deutsche Bank, Craigs Investment Partners, Goldman Sachs, and Macquarie Capital.

Interest in the stock, to be listed on both the New Zealand and Australian stock exchanges, was dominated by NZ investors, with 86.5 per cent of the over 60,000 investors from across the Tasman. Despite the heavy demand, it priced at the bottom of the indicative range of $1.50 to $1.80.

The listing date is slated for October 29 and if recent floats are anything to go by, it could be a very big first day. Shares in the most recent NZ privatisation offering, Mighty River Power, climbed 5 per cent higher on debut while the two most recent ASX IPOs have surged upwards of 25 per cent.

Boral, CSR

Fresh from the completion of a $1.65 billion plasterboard joint venture arrangement with US-based USG, Boral is reportedly chasing a fresh deal with a rival.

This time it comes in the form of Australia’s CSR, with talks on a bricks joint venture reportedly being restarted, according to the AFR.

Further consolidation has long been viewed necessary in the sector and in August rumours surfaced that CSR could in fact buy the Boral bricks and tile business outright. The Australian quoted sources at the time saying a deal could be worth around $60 million.

Wrapping up

Echo Entertainment is planning to offload its Townsville casino, according to The Courier Mail. Singapore’s Lasseters International Holdings is considered a likely buyer at around $75 million.

The Commonwealth Property Office Fund has ramped up the pressure on suitor Dexus by raising guidance and revealing a lift in net tangible assets. A revised offer by Dexus and its Canadian pension fund joint venture partner is expected soon.

Finally, Mark Carnegie and Perpetual Investment Management are putting their shareholdings in Brickworks Ltd and Washington H Soul Pattinson to work, requesting shareholder meetings to cause a shake-up in ownership. Currently Brickworks and Soul Patts hold around a 45 per cent stake in each other, and Carnegie contends breaking this structure up could be the catalyst to unlock $1 billion in value for shareholders.

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