The federal government is set to reap $5.679 billion from the sale of Medibank Private, with shares to begin trading at $2.15 on Tuesday based on an institutional investor price.
Finance Minister Mathias Cormann announced the final price and share allocations for the float of Medibank Private at a special news conference in Perth, ahead of the float at midday on Tuesday.
Earlier this week, the indicative price range for institutional investors was lifted to $2-$2.30.
Due to the way the initial public offering had been structured, retail investors will pay no more than $2, meaning mum and dads will pick up shares at a 7 per cent discount to fund managers.
This could deliver them a paper profit when the stock begins trading at noon on Tuesday.
Some fund managers told Channel Nine's Financial Review Sunday program that Medibank shares could tank if the price did not hit the right mark.
"At $2.20 I would be reasonably indifferent because what we've essentially got is a business that is fair value, according to the way that we think about stocks," said Raaz Bhuyan, principal and portfolio manager at Wavestone Capital.
"At $2.50, I'd say you're putting a lot into a business which has got low margins.
"Yes, it's in a great industry and it's a good business and I think there's a lot in it, but clearly I'd be a happier taxpayer than investor at that point in time."
Professional investor Richard Coppleson warned that if the company was priced too high, some investors would look to lock in what is called a "stag profit". This occurs when investors see an immediate profit due to under-pricing or heavy demand for the listing stock.
"If Medibank comes on at $2.20, it's a buy. $2.25 it's a buy, even at $2.30 I think it's still going to be a buy for retail investors. If it comes on at $2.40, $2.50, the staggers will sell. They won't be able to help themselves, it's too tempting.
"But if you're a long-term holder in this company and you like the story, and it is a good story, you will actually have to hold that temptation and you will do well in the long-term."
The founder of 452 Capital, Peter Morgan, said he was quite nervous about how the float would go because of the hype that had come in the past couple of weeks.
"You're valuing it on an individual basis in a market that is high and valuations are high and interest rates are low," he said. "So the overall market is expensive and this is a company that has got a lot of hype around it and is tied to that sensitivity. And that worries me.
"To that end, I'm quite cautious about going aggressively at it in the first week of trading."
Talal Yassine, managing director at Crescent Wealth and non-executive director at Australia Post, told Financial Review Sunday: "I don't think Medibank Private is a fat and lazy organisation ready for the cull. More things can be done in a for-profit environment – that's different to the fiction common among some people."
