Legg Mason seeks global role with bid to buy Batterymarch

September 20, 1994|By David Conn | David Conn,Sun Staff Writer

Legg Mason Inc. said yesterday it is negotiating to acquire Batterymarch Financial Management Corp., a Boston investment company with about $6 billion in assets under management.

The deal, which Legg Mason executives said could be completed this week, would represent, by far, the largest in a recent string of acquisitions by the Baltimore-based brokerage and investment firm. The purchase would bring the assets under the company's management to more than $24 billion, from its current $18.5 billion.

And, for the first time, Legg Mason would have a sizable portfolio of international securities to offer clients, an investment segment that the company has long desired.

"I've been saying global for years," said Raymond A. Mason, chairman and chief executive officer of Legg Mason Inc. "You cannot be in this business and not have global capabilities."

Because the terms of the deal are still under discussion, Mr. Mason declined to reveal any of the details. In a statement yesterday, the two firms cautioned that "terms of the proposed transaction have not yet been finalized, and that the completion of any transaction would be subject to various regulatory and other conditions."

Mr. Mason did say that an article in the Wall Street Journal, which first reported the proposed deal yesterday, was generally accurate.

That article said Legg would pay "as much as $100 million" for Batterymarch, a privately owned company which the newspaper said had about $10 million in pretax profits last year.

Last year, Legg Mason sold $68 million of convertible debentures; most of the proceeds will be used for this transaction, the report said. It said some of the purchase price would be paid over time.

Batterymarch manages funds for institutional clients, with about $2 billion each in U.S., global and emerging markets accounts. It also acts as investment advisor to two mutual funds managed by the Vanguard Group and a unit of Zurich-based Credit Suisse. Legg officials said Batterymarch probably will launch more funds after the expected acquisition.

As with most of its other purchases, Legg Mason would allow Batterymarch to remain mostly autonomous. Chief executive officer Tania Zouikin and Dean LeBaron, the senior partner who founded the company and owns most, if not all, of the stock, would remain after the deal closed, Mr. Mason said.

The company hopes to have "the general deal" completed by tomorrow or Thursday, Mr. Mason said, and plans to hold a meeting for analysts in New York on Friday to explain the deal further.

In addition to the global perspective, Batterymarch would bring more stability to Legg Mason's earnings, a goal Mr. Mason has pursued for at least a decade. That's because the Boston company's revenues are based on the amount of assets under management, and not on the level of securities trading, which is more volatile.

Of Legg's $398 million in annual revenues in fiscal 1994, which ended March 31, asset management activities generated 16.5 percent, the highest level of any brokerage in the country, Mr. Mason said at the company's annual meeting in July. Legg Mason would not reveal Batterymarch's annual revenues, and the company did not return calls yesterday.

But Mr. Mason said the acquisition would raise his company's asset management revenues to more than 25 percent of total revenues. Based on Legg's recent revenues, that implies annual revenues for Batterymarch of at least $45 million.

Securities industry analyst A. Michael Lipper pointed out that the Boston firm's assets under management have fallen at least 40 percent in recent years, which means it probably still has the capacity to handle a lot more. If Legg is able to direct more funds into Batterymarch's hands, the company's profit margin would rise significantly, said Mr. Lipper, of Lipper Analytical Services Inc. in New York.

One way that could happen is through Legg Mason's many brokerage "wrap accounts," where retail clients' portfolios are actually managed by outside investment firms, Mr. Lipper noted.

THE PURCHASE TRAIL OF LEGG MASON

Legg Mason Inc., with $18 billion in assets under management, continued its string of acquisitions with its announcement yesterday that it is negotiating to buy Batterymarch Financial Management Corp. of Boston. Listed here are the recent acquisitions:

WHO ... ... ... ... WHERE ... ... ... WHEN ... ... ASSETS UNDER

.. ... .... .... .... .... ... ..... .... .... .. .MANAGEMENT*

Western Asset

Management Co. ... Pasadena, Calif. .. Dec. 1986 .. $12.5 billion

Howard, Weil,

Labouisse,

Friedrichs Inc. .. New Orleans .. ... Feb. 1987 ... N/A**

Latimer & Buck

Inc. ... ... .. .. Philadelphia .. .. Oct. 1990 ... $900 million

Dorman & Wilson

Inc. ... ... .. White Plains, N.Y. .. May 1991 .. .. N/A*

Fairfield Group

Inc. ... ... .. Horsham, Pa. ... ... April 1993 ... $360 million

Gray, Seifert

& Co. Inc. ... New York ... .. .. .. April 1994 ... $700 million

Batterymarch Fin.

Management Corp ... Boston ... .. .. Announced .. .. $6 billion

* As of 8/31/94

** Howard, Weil is a brokerage firm.

* Dorman & Wilson is a mortgage broker and servicer.

Source: Legg Mason Inc.

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