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Franklin agrees to buy Legg Mason and create $1.5 trillion investing colossus

February 18, 2020, 12:59 PM UTC
KIEV, UKRAINE - 2019/01/20: In this photo illustration, the Legg Mason Investment management company logo seen displayed on a smartphone. (Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)
KIEV, UKRAINE - 2019/01/20: In this photo illustration, the Legg Mason Investment management company logo seen displayed on a smartphone. (Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)
Igor Golovniov—SOPA Images/LightRocket via Getty Images

Franklin Resources Inc. agreed to acquire asset manager Legg Mason Inc. for almost $4.5 billion in a deal that would create an active-management investing giant.

Franklin will pay all cash for Legg Mason, the companies said in a statement Tuesday. The transaction values Legg Mason at $50 per share, a 23% premium to the Baltimore-based company’s share price Friday.

The transaction is another case of consolidation in the industry, as firms grapple with falling fees and the rising challenge from managers of index-tracking funds. In November, Charles Schwab Corp. agreed to buy TD Ameritrade Holding Corp. for about $26 billion; Janus Henderson Group Plc and Standard Life Aberdeen Plc were both formed in mergers in 2017.

Tuesday’s announcement comes less than a year after activist investor Trian Fund Management took a 4.5% stake in Legg Mason, enough to secure its founder Nelson Peltz a position on the board.

Just days later, the fund manager said it would cut about 12% of its staff and reduce its executive committee to four from eight members. Peltz said at the time his three top priorities were “significantly reducing costs, driving revenue growth organically and through acquisition, and increasing profitability.”

The combined companies will have $1.5 trillion in assets under management. Franklin will also assume about $2 billion in Legg Mason debt.

Name of companyTargetProposed deal sizeStatus
Jupiter Fund Management PlcMerian Global Investors U.K. Ltd.370 million poundsPending
Amundi SASabadell Asset Management430 million eurosPending
Wealth Management PartnersJulius Baer Netherlands BVUnknownCompleted
Standard Life PlcAberdeen Asset Management Plc3.67 billion poundsCompleted
Henderson Group PlcJanus Capital Group Inc.$2.64 billionCompleted
Based on Bloomberg data/announced deals

“This is a landmark acquisition for our organization that unlocks substantial value and growth opportunities driven by greater scale, diversity and balance across investment strategies, distribution channels and geographies,” Greg Johnson, executive chairman of the board of Franklin Resources, said in a statement.

Legg Mason closed down less than 1% to $40.72 on Friday, giving the company a market value of about $3.5 billion.

Asset and wealth managers are facing unprecedented pressures on their bottom lines as investors increasingly pull money from actively managed funds and move them to cheaper passive ones that track benchmarks. The flood of money out of active and into passive funds has sent fees grinding lower, led to thousands of job cuts and forced large-scale consolidation.

Among other changes, Banco de Sabadell SA agreed in January to sell its asset-management business to Amundi SA for 430 million euros ($466 million), while GAM Holding AG considered a sale of the company last year. On Monday, Jupiter Fund Management Plc agreed to acquire rival U.K. asset manager Merian Global Investors.

Tuesday’s announced deal is complementary because Legg Mason primarily focuses on retail investors, while Franklin Resources caters to institutional investors.

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