medibank private, page-42

Nani,
here it is
Veterans on Medibank privatisation MICHAEL SMITH There is a certain irony in the fact that Lance Hockridge’s Eagle Street office in Brisbane overlooks the nearby Medibank building. The chief executive of rail freight giant Aurizon is better placed than most to give Medibank Private’s management a few tips on how to handle its coming privatisation. Medibank is preparing for a $4 billion float before Christmas, making it the largest listing since the $4.6 billion privatisation of Aurizon, or QR National as it was known then, in 2010. Mr Hockridge, who oversaw QR National’s transition from government to public ownership, has been invited to speak to Medibank about its upcoming process. He has plenty of advice. Do your homework, have a good relationship with the politicians, and set tough targets. “A pure listed railroad was an unknown entity. This was an organisation mired in 40 years of history of government ownership. Setting clear and unequivocal and stretched goals was extraordinarily important,” Mr Hockridge told AFR Weekend. Mr Hockridge did not know he was going to run a major public company when he took the top job at state-owned Queensland Rail in 2008. Two years later he found himself at the centre of the largest float since Telstra. There were plenty of frustrations along the way and vigorous opposition from union and miners over plans to structurally separate the Queensland Rail passenger business and the freight and haulage operations which became Aurizon. The frustrations of the process Government privatisations are complex beasts and subject to intense public scrutiny. Executives and bankers who have worked on past floats say political posturing and bureaucratic delays often frustrate the process. Dealing with politicians far removed from commercial realities is difficult. John Stanhope, who was involved in all three tranches of Telstra’s float, did not have any advice for Medibank when contacted on Friday, but in a previous interview offered an amusing anecdote which highlighted how carefully the process needs to be handled. During the second tranche of the Telstra float, there was a slip up that meant the government accidentally paid for former chief executive Frank Blunt’s $15 haircut. The auditor-general made a fuss about it which resulted in a probity officer being appointed to the float, according to Mr Stanhope. Mr Hockridge says a key factor in preparing Aurizon for life away from full government ownership was the huge amount of preparation involved. There had not been a big privatisation for a decade and the only precedents for big rail privatisations was in Canada. He said support from the then Premier Anna Bligh and Treasurer Andrew Fraser took was also crucial to the float’s success. “My key observation was that they were 100 per cent hands-off as they promised they would be. They were at considerable pains, not only not to interfere, but to treat the company in an arms-length way. That is tremendously important.” The Queensland government retained a 34 per cent stake in the company which it later sold down to 16 per cent. It now owns less than 5 per cent. Mr Hockridge pushed for a “clean, complete” exit at the time. Ambitious targets One of his first priorities was setting ambitious performance targets. In Aurizon’s case it was for an operating ratio target of 75 per cent by the 2015 financial year. That target looked stretched at the time and market conditions have deteriorated since then but he is close with the company’s operating ratio running at 77.7 per cent. “At the time it was regarded by most people as at best stretched, and in all reality unattainable . . . but as we have shaken the reform tree 75 is now within grasp,” he says. Opposition to the float was also intense from unions and miners and a debate flared up about whether the company should be structurally separated. An alliance of 14 coal companies also lodged a rival bid for Queensland Rail’s network of coal tracks. “We were determined that the integrated model was the right model from an investment point of view and from a customer point of view as well,” Mr Hockridge said, saying the first four years of the company’s history have proven the decision was right. Aurizon’s market capitalisation has doubled in that time. Bankers say former Victorian Premier Jeff Kennett and state treasurer Alan Stockdale are the masters of successful privatisations following the sale of the state’s electricity assets. NSW has not had as much success. Queensland has privatised Suncorp Metway, TAB and airports. The biggest past privatisations include Qantas which listed in 1995 at $1.90. It closed at $1.54 on Friday. The first tranche of Commonwealth Bank listed in 1991 for $5.40 which compares to a current share price of $81.22. The first tranche of Telstra hit the market at $3.30 a share in 1997, Aurizon listed at $2.45 and now trades at $4.73, while biopharmaceutical company CSL floated in 1994 at $2.30 a share and now trades at $73.40.