Citigroup removes hurdle to Legg deal

Agreement curtails investor proxy fight

November 16, 2005|By LAURA SMITHERMAN | LAURA SMITHERMAN,SUN REPORTER

Citigroup Inc. has agreed to the demands of a mutual fund investor who had waged a proxy battle by threatening to vote against the fund's transfer to Legg Mason Inc., removing a hitch in a $3.7 billion deal between the two financial companies.

Salomon Brothers Fund, which is under the Citigroup umbrella, decided to open the fund to new investors, a move sought by Elliot Management Corp., the fund's largest investor. In return, Elliott agreed to drop its proxy fight and to vote for a new management agreement that would enable the fund to be transferred to Legg Mason.

Citigroup, a New York-based financial-services giant, is swapping its asset-management business, including the funds, for the brokerage arm of Baltimore-based Legg Mason. The companies are putting the final touches on the deal, which they intend to close Dec. 1.

Citigroup has been grappling with proxy fights in six of 170 funds being moved to Legg Mason and struggling to achieve a quorum - the 50 percent of the shares that must be cast for the process to be valid - in each fund.

Several votes were postponed in October to give the company time to prod more investors to cast their shares. More shareholder meetings were held in New York yesterday, and a third day of meetings has been scheduled for Nov. 29.

Citigroup spokeswoman Mary Athridge said more than three-fourths of the funds have attained quorums and approved the transaction. "We fully expect the transaction to close as planned," she said.

The proxy fights are in closed-end funds that are traded on exchanges like stocks. The dissident investors complain that fund share prices have fallen too far below the value of the underlying investments.

By converting the Salomon Brothers Fund to an open-end fund and allowing new investors, current shareholders would be able to redeem their shares at a price based on the value of the investments - not the market value - for a fee of less than 1 percent for the first year. The conversion is subject to shareholder approval.

Cody Bartlett, portfolio manager at another dissident investor, Karpus Investment Management, said it would behoove Citigroup to address the difference between share price and investment value at the remaining closed-end funds where the transfers are being contested. He said such a move would prompt more shareholders to vote for the move.

"Either they continue to solicit votes or they'll sit down and talk to us like they did with Elliott," Bartlett said. "If they did that, they would be able to achieve a quorum very easily."

laura.smitherman@baltsun.com

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