Is Legg Mason On The Block?

The asset management sector continues to look for the next big deal and this time Legg Mason is the topic of takeover rumors.

Last week, sale speculation drove up Legg Mason’s option trading to five times the normal levels. But there was no mention of details or who might buy Legg Mason.

Is Legg up for sale? I’m hearing that the money manager isn’t currently on the block. But Legg, which had $659 billion AUM as of July 31, is vulnerable. In May, Legg unveiled a restructuring that included 350 layoffs and a $1 billion stock buyback plan.

More importantly, Nelson Peltz, the activist investor, began buying shares in Legg last year. Peltz is known for buying stakes in companies and pushing for change (i.e. sale or breakup). He has pressed for changes at Cadbury and Wendy’s, which was later sold to Arby’s.

Peltz has been gradually increasing his stake in Legg, a Legg spokeswoman confirmed. Peltz was allowed to join the Legg board last year as long as he would support the company’s board nominees at annual meetings and as long as Trian wouldn’t buy more than 9.9% of Legg’s outstanding shares, the spokeswoman said.

Peltz’s Trian Fund held 7% of Legg as of June 30. KKR also has about $1.2 billion in Legg convertible debt but no stock, said the Legg spokeswoman, who declined to comment on the sale rumors.

“Peltz has a standstill with the company,” a banker says.  “If he wants [Legg] sold, it will be a long, tough road.”

A sale is not likely right now, sources tell peHUB. Legg Mason has a decentralized affiliate model with so many boutiques that any acquisition would be “a multicultural nightmare to navigate,” one strategic source says. Legg’s performance has also been underwhelming. “Who would have the money/financing to buy such a large complex?” our source asks.

Pent-up anticipation is driving much of the Legg speculation. A spate of mergers took place in the asset management sector last year but not all that many this year. In 2009, Lincoln Financial sold Delaware Investments to Macquarie Group. Morgan Stanley sold its retail funds unit, including Van Kampen, to Invesco, while Columbia Management, which is owned by Bank of America, divested its long-term asset management unit to Ameriprise. Barclays also sold BGI, which owns iShares, to BlackRock in a mammoth $15.2 billion sale.

Then there was Guggenheim Partners, which bought Claymore Securities last summer. Guggenheim also led an investor group to buy Rydex/SGI, which recently closed.

This year might see a few noteworthy asset management deals. UniCredit Group is expected to finally begin the sale process of Pioneer Investments next month.

State Street Corp., which owns SSgA, was rumored last year to be on the block. But that has proved to be untrue. In fact, State Street is a buyer and is bidding for Bank of Ireland’s asset management unit, according to Bloomberg.