Wednesday, March 26, 2014

Medibank Private sale a long haul for journeyman CEO George Savvides

It was early September 2001 when I ran into George Savvides on a busy weekday evening at Melbourne’s Tullamarine Airport.

I was unaware of Mr Savvide’s new post as a director on the Medibank Private board, but knew him from the Melbourne business circuit in his previous roles at the pharmaceutical companies Sigma and Healthpoint.
After studying his new business card and offering the usual congratulations, I recall asking him about the big challenges ahead at the government-owned private insurer.
“They’ve brought me in to help sell it off,” Mr Savvides told me with a smile.

At that point, it was clear George Savvide's destiny at Medibank Private would be more than a boardroom advisory position.
But within the week or so, the world changed forever with the September 11 terrorist attacks in New York and Washington.
Like almost everyone back then, Mr Savvide’s hopes and ambitions were hit by the new global uncertainty.
Suddenly, most big financial deals were in the deep freeze and the sale of Medibank Private was among several potential floats of public assets around the world that were taken off the table.

Within seven months, George Savvides was appointed managing director where he carved a reputation for being hands-on in Medibank Private's long haul away from government ownership.

So today’s announcement that the federal government will finally press ahead with a Medibank Private sale through an initial public offering (IPO) is the culmination of an almost fourteen year process led by George Savvides.
It’s been slow grind that has made Mr Savvides one of Australia’s longest serving chief executives who is now on to his fifth Prime Minister.
In the weeks after last year’s federal election – Mr Savvides told me he felt the anticipated sale of Medibank Private could take place during the Coalition’s first term.
Releasing Medibank Private’s financial results last October, Mr Savvides told The World Today the sell-off remained a key Coalition goal.
"I think it is designed that way and certainly we will respond in a manner required to meet the expectations of the owner," Mr Savvides said.
"But I suspect it will be in the first term."
Over the past six months, speculation of a sale has ramped up when the government quietly initiated an independent scoping study to look at the dollars and cents argument of a potential sell-off.
Indeed, the Medibank Private cash cow appears to have been fattened up after the insurer’s full year profit rose by 84 per cent to $233 million.
It has 3.8 million members with an enviable 30 percent share of the health insurance market.
So how much is Medibank Private worth on the sharemarket?
The Finance Minister Mathias Cormann won’t put a number on it, but estimates range from three to six billion dollars.
That would make it one of the biggest public floats since the final sale of Telstra or T3.
Back in 2006 when a potential sale of Medibank Private was legislated by the Howard government, the insurer was valued at more than $4 billion.
However, Medibank Private’s market value was thought to be around half that so in recent years the government has been waiting for the right time and a better price tag.
With the float preparations still in their early days and bankers yet to be appointed, Mr Savvides is not surprisingly unavailable to speak to the ABC despite the day’s big news.
However, back in October he said Medibank should “value well”.
"Medibank certainly is a mature organisation now, nearly a $6 billion company paying taxes and dividends. So it may be a time to actually be owned more broadly."
Matthias Cormman makes the point that there is no compelling reason for the government to still own Medibank Private.
And the sale removes the conflict of interest where the government is both the market regulator and majority player in a private market.
Investors in a sharemarket-listed Medibank Private may well be some of the insurer’s customers who, through high premiums, might regard themselves as owners of the company.
Those taking a punt will be hoping that Medibank Private follows the form of the Commonwealth Bank – once a government asset which has made many early investors wealthy on paper.
But for George Savvides and Mathias Cormann a new era of hard work is beginning as lead bankers strike the best price for Medibank Private and the taxpayer in an era of government austerity.

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