Legg again looking for deals

CEO `Chip' Mason is in acquisitive mood as earnings soar 15%

May 10, 2007|By Laura Smitherman | Laura Smitherman,Sun reporter

Two years after Legg Mason Inc. undertook the biggest acquisition in the company's history, only to get bogged down in the transaction and all the difficulties that came with it, Chairman and chief executive Raymond A. "Chip" Mason is talking about the next deal.

Mason said in a conference call and in an interview yesterday that the Baltimore investment company would consider an acquisition, though not one of the size and complexity of the $3.7 billion business swap with Citigroup Inc. in 2005.

The executive, who built Legg Mason through a series of acquisitions, said if an opportunity arose to buy, say, a successful European money manager, the company would look at it since Legg is seeking to grow overseas.

"Typically for us, acquisitions are not a big strain," Mason said. He added, "Citi was a totally different story and unlike anything we have ever done, or anyone has ever done. ... I don't envision us doing another Citi kind of acquisition going forward."

Mason's acquisitive talk came as Legg Mason reported that quarterly profit rose 15 percent, beating Wall Street expectations for the second quarter in a row after falling short for three quarters after the Citigroup deal closed.

The latest quarter, which ended in March, completed the first full fiscal year after the transaction in which Legg Mason shed its brokerage and took on Citigroup's asset management business.

Legg Mason earned $173 million, or $1.19 per share, in the fiscal fourth quarter, compared with $150 million, or $1.03 a share, in its final quarter last year. The quarterly results beat estimates by 2 cents a share, according to analysts polled by Thomson Financial.

During the quarter, assets under management grew to a record $969 billion, an increase of $23.7 billion. Apart from market appreciation, investors put $17 billion into the company's money market and bond accounts, which offset $3 billion in negative client cash flows from stock funds.

Legg Mason shares fell $2.87, or 3 percent, to close at $103 on the New York Stock Exchange yesterday.

Jeffrey Ptak, an analyst at Morningstar Inc., which tracks mutual funds, said a willingness to take on another acquisition suggests that problems with the integration of former Citigroup operations are behind the company.

But he also warned that doing a deal, depending on the scope of it, could alienate clients and investors worried "you're taking your eye off the ball."

"With the sort of deal they're talking about, there's already a management team and you just bolt it on and let it run. That's a simpler deal in a lot of ways to implement," Ptak said. "That said, one would hope they would be pretty judicious about that."

Mason said any new acquisition would be the kind of deal he is accustomed to doing, in which a business continues to operate almost autonomously under its old nameplate.

He did that kind of deal at the time of the Citigroup transaction with Permal Group, which manages hedge fund investments. It had $20 billion in assets compared with more than $430 billion Legg Mason got from Citigroup. Mason said that he talks every week to Permal managers, whose main offices are in London, New York and Singapore, but that it doesn't add to his workload much.

Mason, who is 70, has taken back the full reins of his company. His apparent successor, James W. Hirschmann, relinquished his title as president last month and returned full time to his job as chief executive of Western Asset Management, a bond manager based in Pasadena, Calif., and Legg Mason's largest subsidiary. Hirschmann gave family reasons for his decision.

That means Legg Mason directors must begin again the search for someone to replace Mason, who has agreed to stay on at least two more years.

Mason says the company has moved from an "integration focus to a growth focus" and is looking to expand overseas. The profile of the Legg Mason investor is becoming increasingly international, with nearly 80 percent of new client money coming from outside the United States.

At the same time, some equity funds, including star fund manager Bill Miller's Value Trust fund, have suffered from poor performance. Barely a third of the company's open-end stock funds beat the average returns of their peers in the last year, as measured by Lipper Inc., Mason said.

He also noted that the company traded its broker sales force to Citigroup's Smith Barney, where brokers might not be as motivated to plug Legg Mason funds.


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