Ahm Falls Into Medibank's Arms

Sydney Morning Herald

Tuesday December 9, 2008

Danny John

THE march towards a private health insurance sector dominated by just four or five large players gathered pace yesterday after an overwhelming vote in favour of a merger with Medibank Private by Australian Health Management's members.

Almost 96 per cent of the 77,000 policyholders who took part in the poll run by the Wollongong-based AHM supported the $367 million deal that will result in individual payouts ranging from $100 to a maximum of $8800.

The turnout represented 58 per cent of AHM's membership of 158,000 - thought to be the highest such figure in a demutalisation merger vote and certainly the best result in the recent round of private health fund transformation deals.

MBF, which accepted a takeover by BUPA Australia earlier this year to create the second largest industry operator in a $2.4 billion tie-up, achieved a 41 per cent turnout.

Newcastle-based NIB got a 31 per cent vote of its membership when it converted to company status and joined the stock exchange 12 months ago.

Yesterday's decision helped cement the Federal Government-owned Medibank Private's status as the number one fund in terms of membership and national coverage.

AHM members backed their board's decision to reject overtures from NIB and accept better terms from Medibank Private, whose market-leading position was threatened by the tie-up between MBF and BUPA.

The vote will be followed next week by the concluding stage in the $256 million merger of two NSW funds, Manchester Unity and the larger HBF.

MU's 91,000 members will take part in a vote on Monday to seal a merger which will guarantee policyholders a minimum one-off payment of $250 and a maximum of $7640.

Over the past 12 months there has been a rapid acceleration in the process of consolidation long predicted by industry observers such as the recently retired MBF managing director Eric Dodd, his successor at the newly-merged group, Richard Bowden, and NIB's Mark Fitzgibbon.

They were joined yesterday by AHM's chief executive, Mike McLeod, who predicted that there would be more mergers to come as funds aimed to become more efficient while dealing with pressures caused by the increasing cost of health care.

"I'm sure we won't be the last," Mr McLeod said. "There will be a couple or more very large funds [in the future] and then a few smaller specialised operators."

Mid-tier players such as AHM also viewed mergers as a way of growing their business, he said.

Medibank Private bought AHM to take advantage of its telephone and internet-based membership and marketing drive, compared to Medibank's mainly retail shop front business, and the Wollongong fund's emphasis on preventive health care. Medibank will roll out AHM's specialist cover in this area to its own members.

Medibank has also guaranteed to retain AHM's head office in the Illawarra region and to run it as a stand-alone business while retaining the brand name.

The final seal of approval for the merger is due to be given by the Federal Court tomorrow, under which Medibank will take control of AHM on January 15.

© 2008 Sydney Morning Herald

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