Medibank Private: the good and the bad of buying shares There is good news and bad news for investors hoping to avail of Medibank Private shares. MUM and dad investors who put their hands up for Medibank shares are going to get them at $2; the big institutional investors are going to have to pay $2.30. That's the good news - which will be detailed today. Importantly, that's good news not only for the mums and dads getting the shares, but for all Australians who until today were the collective owner of Medibank. Instead of selling it for as little as $4.3 billion, we are now selling it for around $6 billion. That's no thanks to the government's "business adviser" Lazards, which failed comprehensively to understand the investment environment and could have cost the taxpayer billions. The less-than-good rather than bad news is that all investors - retail and insto - are going to get fewer shares than they wanted. Much fewer. And much, much fewer, in the case of broker clients and instos. Retail investors will be protected to some extent. Anyone who's subscribed will get some shares; and those who registered early or are Medibank policy holders will get an extra dollop - two extra dollops if you are in both categories. We - as the former owner - can thank Ben Bernanke and Janet Yellen for the high price we are getting, just as disappointed investors can curse that duo for having to pay up or miss out. This is because Medibank is being sold into a world investment community flush with cash - thanks to the $4 trillion of money printing by the US Fed that duo successively headed - desperately looking for a solid investment. Medibank ticks all the boxes - it's what I describe as a "growth utility." The "utility" part is its solid regular income business. You can be pretty confident that it will pay a regular dividend every year - and for local investors that dividend will be fully franked, adding a bit more. The growth bit is threefold. Medibank is right at the centre of arguably the growth industry of the 21st century developed economy - healthcare. We spend on health as we get older. Australia is getting older. We spend more on health as we find more and more ways to keep people alive. We spend more on health as we move increasingly into private health insurance. We are likely to move more and more into private health insurance as governments find it difficult to fund the public healthcare sector. You think we should spend more on public healthcare? Anyone noticed the budget deficit? In short, Medibank would have been an appealing share to buy even in "normal" times. When depositors almost everywhere else in the world are lucky to be getting 0.5 per cent on their money, they were licking their lips at what Medibank offered. At least you can still get 3 per cent-plus on your money, safely deposited in a local bank - thanks to RBA governor Glenn Stevens and his board resisting the demands to keep cutting rates even lower. But the prospect of doing a little better with Medibank dividends - plus the hoped-for capital growth you can't get with a bank deposit - was still very alluring. So first, brokers asked on behalf of their private clients for around $12 billion of the $5.5 billion of shares that were being sold (at the original $2 top price). They got cut back to just 10 per cent of what they asked for or around $1 billion. Then the true retail investor - mums and dads and Medibank members - asked for around $5 billion of shares. They'll probably get around $1.5 billion-$2 billion. The rest will go to the instos, local and foreign. You can't put a specific figure on what the instos asked for. They bid in a reverse auction. But I'd suggest they would have been prepared to take in the tens of billions of Medibank shares if they could have got them at $2; they probably will still have bid for at least $10 billion even at the higher $2.30. In short, the government could have sold at least $30 billion of the $6 billion of shares (a blend of some at $2 and the rest at $2.30) it has sold. So does this mean it's still selling too cheap? In an absolute sense the answer is yes. If the government had just put Medibank up for auction to the highest bidder, just like a property, it almost certainly could have sold the shares north of $2.50. Despite all the nonsense being promoted by a combination of self-interest and stupidity, Medibank is not overly-pricey at $2.30. Not in a world of zero interest rates and so much money looking for a home. This takes on added emphasis in an Australian market which is so concentrated on just eight stocks - the four banks, the retail duo, Wesfarmers and Woolworths, BHP and Telstra - plus a couple of others like CSL and Woodside. To claim that Medibank is "too expensive" at $2.30 is to really say I would prefer to buy CBA at $80. Indeed, more CBA. Or Woolies. Or Telstra. Or any of the others already stuffing the portfolio. That the indicative price was set as low as $1.55 is a damning condemnation of the government's "business adviser." It got a fee of $3.5 million to "advise" the government to give away billions.