No "compelling reason" to own Medibank Private: govt

27 March, 2014

Following careful consideration of the scoping study commenced in November 2013, the federal government has decided to put Medibank Private up for sale through an initial public offering, Minister for Finance Mathias Cormann announced on Wednesday (March 26).

This provides the best option for the government to achieve its objectives for a sale, which are to contribute to an efficient, competitive and viable private health insurance industry, and to maintain service and quality levels for Medibank customers, including in regional and rural Australia, the government said in a statement.

The precise timing and structure of the initial public offering are yet to be determined.

"The independently prepared scoping study reaffirmed our long-held view that there is no compelling reason for the government to own Medibank Private," Cormann said.

"Medibank Private is a commercial business operating in a well-functioning, well-regulated competitive private health insurance market with 34 competing funds.

"There is no market failure in the health insurance market.

"The scoping study found no evidence that premiums would increase as a result of the sale of Medibank Private. As it does now, Medibank Private will need to continue to compete against other funds for policyholders and will need to continue to comply with relevant regulatory requirements around changes in premiums.

"The sale of Medibank Private will remove the inherent conflict currently in place where the government is both the market regulator and the owner of a large participant in the market."

Medibank issued a statement on Wednesday welcoming the government's announcement.

"We look forward to working with the government and its advisers over the course of the sale process," Medibank Chairwoman Elizabeth Alexander said.

The government will now proceed to the next stage of preparing for the initial public offering which includes the appointment of joint lead managers and other relevant appointments.

As part of the preparation for sale and as Medibank Private transitions to new ownership, the government has decided to appoint three new board members to ensure a continued balance of skills on the Medibank Private Board in the lead up to privatisation.

David Fagan, Linda Nicholls AO and Christine O'Reilly will commence as members of the Board on 31 March 2014.

Fagan is a highly experienced banking and major projects lawyer with Clayton Utz. He will provide additional commercial legal expertise to the Board.

Nicholls is a corporate adviser and a director of a number of leading companies and organisations including KDR (Yarra Trams), Sigma Pharmaceutical Group and Fairfax Media. Her experience will complement existing commercial and health expertise on the Board.

O'Reilly is currently a Director of CSL, Transurban, Energy Australia and Baker IDI and a Deputy Chair of Care Australia. Her diverse and extensive financial and operational experience will be highly valued by the Board.

Cormann thanked retiring Board members, Professor Leanne Rowe AM and Mr Steve Vamos for their "outstanding contribution" to the Medibank Private Board, as well as the scoping study's advisers for their "thorough" work.