Analyst doubts Legg Mason buyout

January 11, 2013, 9:06 PM UTC

FORTUNE — Is Legg Mason a viable buyout candidate? Not according to Nomura analyst Glenn Schorr, who doesn’t think the fundamentals make sense.

Reuters yesterday announced that Legg Mason (LM) had been “approached in recent months by some of its senior managers and private equity firms with plans to take the struggling asset manager private.” The company’s board, however, demurred. well, at least until it hires a permanent CEO to replace Mark Fetting (he stepped down last September, with global distribution boss Joseph Sullivan currently serving as interim CEO).

The report caused Legg Mason stock to jump more than 3%, which would give it a market cap north of $3.5 billion. But in a new research note, Schorr seems to think that the private equity firms weren’t terribly serious:

“Legg is already a highly leveraged asset manager with a gross debt-toEBITDA of ~3.3x (with ~$1.2B of LT debt ex-consolidated investment products) vs. peer average of ~1.3x.  Given LM’s current market cap of ~$3.6B, we estimate an LBO would lever LM to a high debt level of ~6-7x (assuming a 70% debt financing and consensus EBITDA NTM). In addition, we believe Legg would still face the tough task of improving its flow trends (LM had net outflows for every quarter except one since end of 2008) which would be necessary to produce stable earnings. With high debt levels and weak fundamentals, we believe a buyout of LM is unlikely.”

Schorr also wonders if a prospective deal would be for all of Legg Mason, or just what’s left behind once large affiliates like Western Asset Management (fixed income) and ClearBridge Adivsors (equities) are spun out. Or perhaps the private equity firms would just back the spinouts.

Not mentioned by Schorr, but certainly worth adding, is that Nelson Peltz holds around a 10% stake in Legg Mason, and there is no indication as to his interest in selling to private equity.

Never say never, but this one reads to me like pot-stirring more than anything else so far…

Sign up for Dan’s daily email newsletter on deals and deal-makers: GetTermSheet.com