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Franklin Templeton to acquire Legg Mason

The acquisition is expected to expand Franklin Templeton's fixed income business.
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Franklin Templeton has confirmed it is buying rival fund group Legg Mason in a deal worth almost $4.5bn.

The US fund group said on Tuesday it had agreed to buy Legg Mason and its affiliate asset management companies for $50 a share in an all-cash deal.

It said the combined company would have $1.5trn assets under management globally. The cash for the deal will be funded by Franklin Templeton’s existing balance sheet. It will also assume $2bn of Legg Mason’s debt.

In an announcement to the market, Franklin Templeton said combining with Legg Mason will “significantly deepen Franklin Templeton’s presence in key geographies and create an expansive investment platform that is well balanced between institutional and retail client AUM”.

Cost savings of $200m a year

It said while cost synergies have not been a strategic driver of the transaction, the unification of the two businesses is expected to result in approximately $200m in annual cost savings, the majority of which are expected to be realised within a year of the deal closing.

The deal comes just one week into Jenny Johnson’s (pictured) tenure as chief executive of Franklin Templeton after she replaced her brother Gregory. She will continue in her role once the deal has been closed. Gregory Johnson will remain as executive chairman of the board.

The statement said the autonomy and identity of Legg Mason’s affiliates will remain unchanged. The firm’s affiliates include Brandywine Global, Clarion Partners, Clearbridge Investments, Martin Currie, QS Investors, Royce Investment Partners, and Western Asset.

Affiliate EnTrust Global, a provider of alternative investment solutions, has agreed with Franklin Templeton to repurchase its business and become a private firm.

‘Modest overlap’

Jenny Johnson said: “This acquisition will add differentiated capabilities to our existing investment strategies with modest overlap across multiple world-class affiliates, investment teams and distribution channels, bringing notable added leadership and strength in core fixed income, active equities and alternatives. We will also expand our multi-asset solutions, a key growth area for the firm amid increasing client demand for comprehensive, outcome-oriented investment solutions.”

Legg Mason chairman and CEO Joseph Sullivan said: “The incredibly strong fit between our two organisations gives me the utmost confidence that this transaction will create meaningful long-term benefits for our clients and provide our shareholders with a compelling valuation for their investment.”

According to a Morningstar report, the acquisition will expand Franklin Templeton’s fixed income business. It added that the new entity would have a much heavier focus on fixed income, which is expected to account for nearly half of managed assets, with roughly one-third in equities.

It will “give it diversification away from the global macro team’s strategies led by Michael Hasenstab, which account for a large share of Franklin’s current fixed-income platform and have experienced significant outflows recently”, the report said.

“Overall, there is a good deal of overlap across Franklin and Legg Mason’s fixed income equity lineups, for both global and US-focused strategies as well as across the firms’ multi-asset offerings.

The deal comes just a day after Jupiter announced it was buying rival fund group Merian Global Investors for £390m ($507m) in shares in the combined group.

It is another example of active asset management houses joining forces to benefit from economies of scale as the investment backdrop makes life difficult for active managers. It follows the unions of Aberdeen Asset Management and Standard Life Investments, Janus Group and Henderson, Amundi and Pioneer and more recently Premier and Miton.

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