Legg, Citigroup deal slips to Dec.

Exchange stymied by need to gain approval of mutual fund shareholders

October 18, 2005|By LAURA SMITHERMAN | LAURA SMITHERMAN,SUN REPORTER

The target date for Legg Mason Inc. and Citigroup Inc. to close their $3.7 billion business swap has slipped to December as the companies grapple with one of their biggest hurdles - persuading mutual fund shareholders to approve the idea.

Officials from both companies have said publicly that they planned to close the deal sometime in the fourth quarter. Internally, they had set a goal of Nov. 1. Now company officials acknowledge they might not finish the necessary administrative tasks before Dec. 1.

The shift comes as the companies plan to hold a meeting of mutual fund shareholders Friday in New York. Those shareholders have been asked to approve new management agreements needed to transfer funds to Legg Mason from Citigroup, making the Baltimore company the fifth-largest money manager in the world.

Legg Mason is exchanging its brokerage business for $437 billion in assets from Citigroup.

Raymond A. "Chip" Mason, Legg Mason's chairman and chief executive officer, said in an e-mail to employees last week that "the primary issue has been the voting of the mutual funds."

Dissident shareholders at six of the 200 funds announced they are putting up a fight in an attempt to force Citigroup to address an unrelated complaint about a "discount" on the price of their shares in closed-end funds.

Those funds are traded on an exchange like common stock, and sometimes the share price doesn't reflect the full value of a fund's investment portfolio.

Cody B. Bartlett Jr., portfolio manager at Karpus Investment Management, one of the dissidents, said the transfer of a few funds could be blocked in two ways: Citigroup and Legg Mason could fail to attract the 50 percent of the shares needed for a valid vote at each fund or they could fail to get sufficient votes in favor of the measure.

"Really, our best shot is at them not getting a quorum," Bartlett said. Karpus, which holds a 7 percent stake in two funds, could be the key in reaching a quorum and would vote for the transfer if Citigroup agrees to take steps to narrow the discount, he said.

Mary Athridge, a Citigroup spokeswoman, said the New York financial services firm and Legg Mason "fully expect" to reach a quorum on all of the votes. Mason, in his e-mail, said a "substantial majority" already is sending in votes in favor of the transfer.

Industry experts say the companies could close the bulk of the transaction and deal with any funds that fail to receive approval at a later date.

Nevertheless, all of the voting might not be accomplished Friday. Athridge said two meetings might be scheduled in November. She emphasized that in pushing back the target date, the companies wanted to ensure that things were done right.

"This is a very complex transaction," she said. "You're not just talking about mutual funds. The brokers are going to Smith Barney. There are a lot of moving parts. It's a lot of detail."

As part of the transition, the companies are forming new management teams and moving top executives around. They announced yesterday that long-time Legg director James W. Brinkley will join Smith Barney's global private client group as vice chairman. Brinkley had been with Legg Mason since a merger formed the company in 1970.

laura.smitherman@baltsun.com

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