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Franklin Resources to buy Legg Mason for US$4.5b

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Franklin Resources agreed to acquire asset manager Legg Mason for almost US$4.5 billion in a deal that would create an active-management investing giant.

[NEW YORK] Franklin Resources agreed to acquire asset manager Legg Mason for almost US$4.5 billion in a deal that would create an active-management investing giant.

Franklin will pay all cash for Legg Mason, the companies said in a statement Tuesday. The transaction values Legg Mason at US$50 per share, a 23 per cent premium to the Baltimore-based company's share price Friday.

The transaction is another case of consolidation in the industry, as firms grapple with falling fees and the rising challenge from managers of index-tracking funds. In November, Charles Schwab agreed to buy TD Ameritrade Holding for about US$26 billion; Janus Henderson GroupĀ  and Standard Life Aberdeen were both formed in mergers in 2017.

Tuesday's announcement comes less than a year after activist investor Trian Fund Management took a 4.5 per cent stake in Legg Mason, enough to secure its founder Nelson Peltz a position on the board.

Just days later, the fund manager said it would cut about 12 per cent of its staff and reduce its executive committee to four from eight members. Mr Peltz said at the time his three top priorities were "significantly reducing costs, driving revenue growth organically and through acquisition, and increasing profitability."

The combined companies will have US$1.5 trillion in assets under management. Franklin will also assume about US$2 billion in Legg Mason debt.

"This is a landmark acquisition for our organisation that unlocks substantial value and growth opportunities driven by greater scale, diversity and balance across investment strategies, distribution channels and geographies," Greg Johnson, executive chairman of the board of Franklin Resources, said in a statement.

Legg Mason closed down less than 1 per cent to $40.72 on Friday, giving the company a market value of about US$3.5 billion.

Asset and wealth managers are facing unprecedented pressures on their bottom lines as investors increasingly pull money from actively managed funds and move them to cheaper passive ones that track benchmarks. The flood of money out of active and into passive funds has sent fees grinding lower, led to thousands of job cuts and forced large-scale consolidation.

Among other changes, Banco de Sabadell agreed in January to sell its asset-management business to Amundi for US$466 million, while GAM Holding considered a sale of the company last year. On Monday, Jupiter Fund Management P agreed to acquire rival UK asset manager Merian Global Investors.

Tuesday's announced deal is complementary because Legg Mason primarily focuses on retail investors, while Franklin Resources caters to institutional investors.

BLOOMBERG