Medibank Private chief executive George Savvides and Finance Minister Mathias Cormann have extra incentive to make sure subscribers to the float do well from their investment -- at least over the next year or so.
The biggest part of the value in Medibank Private is its huge customer base. Those customers are to be given a priority in the float, which will mean that any Medibank customer who wants a small parcel of shares will have the chance to subscribe at the retail price. A very large number will do so.
This is a very sensible strategy for Savvides but carries obvious rewards and risks. If the shares go to a premium and the Medibank customers can “brag” about their investment decision it locks in the goodwill and they will be very hard for rival funds to poach.
On the other hand, if Medibank proves to be a poor investment then there will be a sour taste for a large portion of the Medibank customer base. They will then be plum targets for rivals. In addition in these floats, the finance minister and the government also wins goodwill if the public issue they promote goes well.
When current Finance Minister Mathias Cormann is finished with politics he can be a stockbroker. Yesterday he was on radio right around the country and the words carried by his slight German accent added sincerity to the government’s pitch (Mathias Cormann was born in the German-speaking town of Eupen in eastern Belgium).
So my guess is that with so much at stake there will be all sorts of devices inserted to help the early trading. Sometimes there is a discount to retail investors or there can be an incentive to hold the shares for a year. Most important of all, Savvides and Cormann need to make sure the public take as many shares as possible so that those institutions who have highly paid managers that are slaves to the index are forced to buy stock after the listing, boosting the price.
Savvides says he can reduce Medibank’s costs once Medibank is a listed corporation rather than an arm of government. I have no doubt that is right but it will not be easy. As we saw with Qantas and Telstra, the culture of government-style management runs deep in parts of these organisations.
If Savvides really wants to make a contribution to customer well-being he should incentivise the hospitals to slash paperwork by using iPads or similar devices, and co-ordinating the various arms of medicine.
This is the so-called Barwon model which has slashed the cost of medicine in regional Geelong and improved the service. (How to save our sick health system without GST hikes, May 21.) Currently nurses do their best but are forced by lazy managers to use the systems that were old 50 years ago.
If Savvides followed the Barwon model and cut the cost of hospitals but improved the service, my guess is that Medibank and their investors would get a small additional slice of the bountiful pie.