Legg turns to Canada in record deal

Baltimore firm to pay $211 million for money manager

First Canadian venture

Broker aims to take advantage of easing in investment laws


March 11, 2000|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

Legg Mason Inc. said yesterday that it had agreed to buy a Toronto investment management firm in what would be the Baltimore company's largest acquisition and its first venture into Canada.

The all-stock deal to acquire Perigee Inc., Canada's ninth-largest institutional investment manager, with $14 billion in assets under management, is valued at $211.3 million, based on Legg Mason's closing price yesterday. It is subject to shareholder and regulatory approval.

"The major thing we get is great access into that market," said Raymond A. Mason, Legg Mason's chairman and chief executive officer.

That market is becoming more attractive with anticipated changes in Canadian pension law. Under the law now, pensions must invest most of their money in Canada. Those restrictions are expected to be relaxed.

Pension funds, which make up half of Perigee's clients, have been demanding greater access to international and U.S. investments and they want foreign managers to oversee those assets, said Alex Wilson, Perigee's chief executive, in a conference call yesterday.

The changes in the Canadian market prompted Perigee to explore its options in the past year, Wilson said. In the fall, Perigee approached Legg Mason about a possible merger.

Wilson said he had contacted many of Perigee's clients and found support for the merger. "All believe we are moving in the right direction and it was a good strategic move," he said.

Besides the acquisition, Legg Mason hopes to benefit from Perigee's relationship with Clarica Life Insurance Co., one of Canada's largest insurers and 20 percent owner of Perigee. Perigee also manages the majority of Clarica's mutual funds.

Clarica has more than 3,000 agents who may sell Legg Mason products to their customers. Legg Mason also plans to work with Clarica in figuring which Legg Mason products are suited for Canada or can be adapted for customers there, Mason said.

The Baltimore brokerage and financial company may make other Canadian acquisitions, most likely purchases of investment firms that deal with high net-worth individuals, Mason said.

"This was a very astute acquisition on Legg Mason's part," said Michael Flanagan, president of Financial Service Analytics in Philadephia.

Canada is an attractive market and other firms, including Merrill Lynch & Co. Inc. and Charles Schwab & Co., have made acquisitions there in recent years, he said.

Perigee may have approached Legg Mason because of the Baltimore company's practice of letting subsidiaries run autonomously, Flanagan said. Perigee, with 80 employees, will become a wholly owned subsidiary but without any anticipated management or organizational changes.

"Firms hate to give up their independence," Flanagan said. "It's almost like getting married. On the one hand, you may not want to give up your independence. On the other, if it's the right partner, it can be a lot of fun."

The deal is "fairly priced," he said.

Each share of Perigee stock will be exchanged for 0.387 of Legg Mason stock. The formula may be revised if Legg Mason's stock falls below $34.50 or rises above $44.25.

The deal requires approval by two-thirds of Perigee's shareholders, who will vote on the acquisition in mid-May. Most of the needed support is behind the deal already, said Elizabeth Sector, a Legg Mason senior vice president. Legg Mason's stock closed yesterday at $40.625, up 68.75 cents per share. Perigee's stock rose $5.25 per share to $21.75 Canadian dollars.

Previously, Legg Mason's largest acquisition was the purchase two years ago of Brandywine Asset Management, which had $7.4 billion in assets under management.

Legg Mason had $104.2 billion in assets under management at the end of last year.

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