Franklin Resources Inc. is in talks to buy rival asset manager Legg Mason Inc., according to people familiar with the matter, in a deal that could help two big players in an industry that is under pressure from shifting investor tastes.
Continue Reading Below
Assuming it comes together, a deal for Legg Mason could be announced as soon as Tuesday, the people said. While the exact price and other terms couldn't be learned, it would be sizable given Legg Mason's market value of more than $3.5 billion and assets under management of $800 billion.
Legg Mason owns a portfolio of nine investment managers that operate under their own brands, including bond specialist Western Asset Management and stock picker ClearBridge Investments.
California-based Franklin Resources, with a market value of $12.1 billion, manages nearly $700 billion, including both stock and bond investments. The company operates under the Franklin Templeton brand.
Many so-called active asset managers including Legg Mason and Franklin Templeton have struggled to adapt to the flow of hundreds of billions of dollars in client money into low-cost funds that track popular indexes. The shift away from managers that actively pick stocks has crimped profits at those firms and forced them to hunt for new sources of revenue and ways to slash expenses, such as mergers.
A deal would clear up uncertainty that had shrouded Legg Mason's future for nearly a year, since activist investor Trian Fund Management LP took a stake in the company and secured representation on its board.
Trian executives said last year they would help Legg Mason cut costs and boost revenue to shore up profit margins that have lagged behind those of many of its peers. They also argued the firm could emerge as a buyer in an industry many executives and their advisers say is ripe for consolidation.
Trian's chief executive, Nelson Peltz and its investment chief, Ed Garden, are Legg Mason directors. The firm previously owned Legg Mason stock from 2009 to 2016, and Mr. Peltz sat on its board then before stepping off in 2014.
Trian rebuilt a stake in Legg Mason as the money manager was seeking to repair frayed relationships with some of its affiliates.
In early 2019, Legg Mason Chief Executive Joseph Sullivan unveiled a plan to centralize an array of services and functions spread across the firm's money-management affiliates. In doing so, he told analysts, Legg Mason could shed as much as $110 million in annual costs.
There was one problem: Many of the firm's affiliates, including its biggest, Western Asset Management, resisted the move. And thanks to an agreement the bond manager had signed decades earlier, Western's executives had little incentive to go along.
The affiliates pushed back at Mr. Sullivan's efforts to centralize, arguing they would lose oversight of operations, human resources and other functions core to their success, people familiar with the matter have said. The affiliates use Legg Mason's shared sales platform to distribute their funds to individual investors, but some, including Western, also rely heavily on their own teams.
Mr. Sullivan went public with his plan despite the pushback, triggering an uprising of sorts by the managers. He relented within days, narrowing the cost-cutting plan's focus to the parent company's operations. In May, he announced plans to slash 120 corporate jobs and shrink his management team.
Write to Justin Baer at email@example.com and Cara Lombardo at firstname.lastname@example.org
(END) Dow Jones Newswires