Shares of asset manager Legg Mason (LM: Charts, News) gained +1.38 or +5.42 percent to $26.85 per share in heavy trading on Tuesday, after the company announced that its Chief Executive Mark Fetting would be stepping down effective October 1st. Mark Fetting took the helm of the company in January of 2008 at the onset of the financial crisis.
Legg Mason will place its head of global distribution, Joseph Sullivan as interim chief executive while the company searches for a new CEO. Independent director W. Allen Reed will act as non-executive chairman.
Baltimore, Maryland based Legg Mason Inc. is the world’s eighteenth largest asset manager and a component of the S&P 500. The amount of assets the company had under management as of last June was reported to be $642 billion.
The company’s stock, which traded over $100 per share in 2007, went under $40 per share and has since stayed below that level, trading as low as 22.38 on May 15th of this year. Legg Mason has seen 19 consecutive quarters of net withdrawals under Fetting who was also pressured by Trian Fund Management LP manager Nelson Peltz.
The Trian Fund is Legg Mason’s largest shareholder with 14.7 million shares; Peltz has been an active member of Legg Mason’s board since 2009 and has called for the company to stem outflows. Legg Mason has been severely affected by customer withdrawals, with no quarterly net inflows since 2007. In addition, volatile markets and weak performing funds have weighed heavily on earnings.
The Trian Fund has agreed to maintain its stake of Legg Mason under 10 percent, but the agreement expires in November, which would give Peltz the opportunity to increase Trian’s stake to 10.5 percent. In late July, Legg Mason reported its first quarterly loss since 2009.
The company posted a net loss of -9.5 million or $0.07 per share in the quarter ended June 30th, versus a profit of $60 million or $0.40 per share in the same period one year ago. Analysts were expecting a profit of $0.03 per share.
Legg Mason cut its advisory fees by 11 percent, eliminated jobs and restructured its debt in order to cut costs and counter the exodus of client funds from its stock and bond funds. The debt restructuring and the release of two new investment products reduced earnings in the quarter by $0.43 per share.
While board member Peltz may have intentions on expanding Trian’s stake, he could also be strategizing a breakup of the company. Legg owns several investment units which invest using different strategies, including Legg Mason Capital Management, ClearBridge Advisors, Permal Group and Royce and Associates.
While asset managers have been under severe pressure, Legg Mason’s stock price trading at 25 times earnings of $1.07 per share could be cheap enough to represent an asset play for Peltz’s fund. With that in mind, Legg Mason stock is trading for a quarter of its 2007 level. Things could get interesting before Trian’s agreement expires on November 30th.
Other News About LM
Legg Mason Bulls Pick Up Long-Term Calls
Heavy trading in LM LEAPS options on Tuesday.
Legg Mason Inc Implements Chief Executive Officer Succession Plan
Reuters article on Legg Mason’s search for a new CEO.
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