US fund giant Franklin Templeton is to buy rival group Legg Mason to create a fund management behemoth with $1.5 trillion in assets. It’s the second major industry acquisition to be announced in as many days after Jupiter pounced on Merian on Monday.
The $4.5 billion deal will see Franklin Templeton buy Legg Mason for $50 per share, a $10 premium to its share price on Monday, and means Franklin will take on $2 billion of Legg Mason’s debt. The deal has been approved by both boards but is still subject to the approval of regulators in the US, where both fund companies are listed. At the market open on Tuesday, Legg Mason’s share price jumped 25% to just above the $50 offer price.
The rate of mergers and acquisitions has been picking up across the funds industry. Last year in the UK, Liontrust acquired boutique Neptune Investment Management, while Miton and Premier merged to form Premier Miton.
Morningstar’s head of fund research Jonathan Miller, notes that the Franklin Templeton-Legg Mason deal is part of the wider trend of active managers consolidating. “The sheer scale of this deal would take the new entity into the top six of asset managers globally,” says Miller. “While the independence of the Legg Mason affiliates is mentioned as wanting to be left intact, this is still a huge undertaking and cost-cutting will clearly happen along the way. Active managers are closely mapping out their future trajectory amid fee compression, outflows and the threat from passive funds.”
Franklin Templeton is known among UK investors for its emerging market coverage; its Templeton Emerging Market Investment Trust (TEMIT), rated Neutral by Morningstar, launched in 1989 and now manages £2 billion in assets.
Affiliates Stay Autonomous
Legg Mason and its associated companies manage more than $800 billion in assets (as at January 31, 2020) via affiliates such as Western Asset, ClearBridge Investments, Brandywine Global, Martin Currie and QS Investors.
Three Legg Mason funds have a coveted Gold Morningstar Analyst rating including the Legg Mason Western Asset US Core Plus Bond fund, while there are also a number of Silver, Bronze and Neutral-rated funds across the group’s range.
The chief executives of Western Asset and ClearBridge have said they are looking forward to working within the wider Franklin Templeton group. Franklin Templeton said it “will preserve the autonomy of Legg Mason’s affiliates, ensuring that their investment philosophies, processes and brands remain unchanged”. However, some Legg Mason affiliates are not joining the Franklin Templeton group, among them EnTrust, which is buying back its company when the deal goes through.
Jenny Johnson, president of Franklin Templeton, said the deal will help the company expand its multi-asset offering and help plug gaps in its geographic reach, while Joseph Sullivan, chairman of Legg Mason, said the two investment companies will keep their independent identities.