Exclusive: Private equity eyed Legg Mason but were spurned

Thu Jan 10, 2013 5:03pm EST
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By Jessica Toonkel and Ross Kerber and Greg Roumeliotis

NEW YORK (Reuters) - Legg Mason Inc (LM.N: Quote) has been approached in recent months by some of its senior managers and private equity firms with plans to take the struggling asset manager private, but the board has decided against exploring that option at least until the company has a new chief executive, three sources said.

At least two large private equity investors have shown interest in financing a buyout led by the leaders of the money manager's largest affiliates, but the board has refused to engage in such discussions, the sources familiar with the situation said. At least one of the private equity investors approached the board as recently as November, according to one of the sources.

A spokeswoman for Legg Mason, the fourth-largest publicly traded U.S. asset manager, declined to comment and said that Allen Reed, chairman of the board, and Joe Sullivan, interim CEO, declined to comment for this article.

Legg Mason shares rose as much as 7 percent to $27.93 on the news, hitting their highest since April, in their most active trading day since May. The company has a $3.42 billion market capitalization on the New York Stock Exchange.

The identity of the private equity firm and the managers could not be learned. Nor was there any information about how any proposed deal was structured. The sources declined to be identified because they are not allowed to speak to the press.

Legg Mason rode the technology boom at the turn of the century and then a enjoyed a period of good stock-picking, but has seen its fortunes wither in recent years amid choppy markets and mixed investment performance.

Returns have recovered in many cases but it can take years for asset managers to recover investors. Even a recent quarter of inflows for the three months ended September 30 was driven by the $9.7 billion that came into low-margin money funds, barely offsetting the $9.5 billion investors pulled out of Legg Mason's equity and fixed-income products.

In 2012, star fund manager, Bill Miller, gave up management of his main fund after a string of sub-par results, and in the fall of last year CEO Mark Fetting stepped down. Activist investor Nelson Peltz, known for pushing for change at companies, bought a stake in the company and has taken a seat on the board.   Continued...