Deutsche Bank beats fancied rivals for Medibank role

Deutsche Bank executives Down Under like to consider themselves salt of the earth types, so they will probably be celebrating their appointment as one of the three joint lead managers of Medibank Private’s initial public offering with a stubby or two of Victoria Bitter rather than vintage Krug champagne.

Deutsche Bank has quietly snuck up and snatched a coveted Medibank mandate ahead of UBS and Credit Suisse, the latter selected by then Prime Minister John Howard’s government in 2007 to be a joint lead manager of Medibank’s IPO in a planned share sale later cancelled by the Labor Party.

The Medibank IPO will take place, subject to market conditions, in the 2014-15 financial year. The Commonwealth has not indicated how large the float will be nor the number of shares that will be sold or their potential offer price.

Deutsche Bank, which has been in Australia for 41 years, had an advantage over its 10 other rivals when pitching for the Medibank mandate: New Zealand.

In July 2011, it was selected by the New Zealand government to be its adviser on a state asset sale program that was completed this year and raised $NZ4.7 billion for the Crown.

Deutsche Bank not only advised the Crown on the sale of four New Zealand state owned companies but its investment bankers, strictly separated from each other, also acted as joint lead managers and book runners on the $NZ1.8 billion Meridian Energy IPO in October 2013 and the $NZ365 million sale of shares in Air New Zealand in November last year.

As New Zealand’s asset sale program is the most recent and relevant asset sales to Canberra, the Australian government took Deutsche Bank’s experience to heart.

Deutsche Bank could also boast to Canberra, much to the irritation of rivals, the biggest secondary market share among all brokers. This may help the bank ensure smooth after market trading of Medibank shares.

In the year to date, Deutsche Bank’s share of secondary market trading on the ASX is 12.3 per cent. Citigroup is second with a 9.5 per cent market share. Deutsche Bank also claims the biggest market share in ASX-listed healthcare and insurance stocks.

A government mandate to sell a state asset, according to some investment bankers, is rarely profitable as expenses and the cost of employing a big team to service a blue chip client often makes for a loss-making enterprise.

But Deutsche Bank and its fellow Medibank joint lead managers Goldman Sachs and Macquarie will hope that notwithstanding fees, the secondary market trading in Medibank plus simply the prestige and league table credit of the IPO will mean additional deals for their antipodean franchises.

(Reporting by Brett.Cole@businessspectator.com.au )