Legg's capital markets unit sold

Citigroup selling operation to Stifel Financial of St. Louis

Nearly 500 employees are involved

300 in Baltimore to retain jobs as part of new branch here

September 13, 2005|By Laura Smitherman | Laura Smitherman,SUN STAFF

Stifel Financial Corp. has agreed to buy Legg Mason's investment banking, research and trading operations, which Citigroup Inc. had inherited as part of a separate deal.

Nearly 500 Legg Mason Inc. employees will join Stifel, which has its headquarters in St. Louis and offices around the country. The employees will stay in their current offices, with about 300 in Baltimore forming Stifel's first branch in the city.

Several high-ranking executives, including Richard J. Himelfarb, director of Legg Mason's investment banking, landed comparable positions at Stifel and may be elected to the company's board of directors.

"The people who have run this business are going to continue to run this business and have significant influence in our company," said Ronald J. Kruszewski, chairman and chief executive officer of Stifel and its subsidiary Stifel Nicolaus & Co.

Kruszewski was in Baltimore yesterday to meet with Legg Mason employees and be host for a conference call.

Stifel, a brokerage and investment banking firm founded in 1890, agreed to pay Citigroup as much as $95 million for the Legg Mason operations, including a premium based on how well it performs over the next three years. The acquisition almost doubles Stifel's size in terms of revenue.

The agreement also puts an end to questions about the future of the capital markets division, which Legg Mason agreed in June to swap along with its entire brokerage unit for Citigroup's money management business.

The $3.7 billion deal, announced in June and still in the process of being executed, would make Legg Mason the fifth-largest money manager in the world. Citigroup, the world's largest financial services company, had hinted it would turn around and sell the capital markets division, which overlaps with its own operations.

"Obviously, Citigroup was mainly interested in the brokerage business, and it's not a surprise they're selling capital markets," said Jennifer C. Chien, an analyst at PNC Advisors.

In recent weeks, a number of Legg Mason employees left the division for competitors including A.G. Edwards & Sons Inc. and Wachovia Securities LLC. The defections led to speculation that Citigroup would have to lower its asking price to be able to unload the division, which relies on intellectual capital.

But Kruszewski emphasized that turnover was minimal. He said more than 90 percent of the Legg Mason employees are on board to stay with Stifel and that many senior managers have signed employment contracts.

As an incentive, Stifel plans to issue nearly $35 million in restricted stock to key Legg Mason employees. The company also plans to issue restricted stock to match a portion of another 1.1 million shares to be sold in a private offering to Legg Mason employees.

Legg Mason executives in the conference call yesterday called Stifel a good fit for them. Corporate brass from both firms had been working on a deal for about three months, having gotten to know each other when Legg Mason was an underwriter for a Stifel stock offering two years ago.

"For us, it's plug and play, so from day one we can do our business as we always have," said Joseph A. Sullivan, director of Legg Mason's fixed-income group. "I'm excited about having a headquarters in St. Louis. It gives us reach and access to clients west of Baltimore."

Stifel's stock soared 11.3 percent, or $2.89, to close at $28.39 yesterday. Citigroup shares rose nearly 1 percent, or 40 cents, to $45.01. Their deal is expected to close in tandem with the Legg Mason-Citigroup swap later this year.

Stifel Financial Corp.

Brokerage and investment banking firm

Founded in 1890

Based in St. Louis, with offices around the U.S.

1,300 employees

$250 million in annual revenue

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