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What is billionaire activist Nelson Peltz's plan for Legg Mason?

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By David Hoffman

October 26, 2009 4:10 pm ET

The the appointment today of billionaire and activist investor Nelson Peltz to Legg Mason Inc.'s board of directors rekindled speculation in the industry that the asset management giant may eventually be taken private — but experts said that Legg will likely remain a publicly traded company in the near-term.

For now, investment management observers noted that Mr. Petlz, who now owns slightly more than 4% of Legg Mason, appears happy with the direction the Baltimore-based firm is moving.

“Improvement still will be somewhat challenging for them in the near term,” said Robert Lee, an analyst with Keefe Bruyette & Woods Inc. of New York, who covers Legg Mason. “But revenue growth has improved.”

That revenue growth has smoothed some turbulent conditions that helped fuel speculation last year —when Legg was experiencing substantial mutual fund outflows — that the firm's executives were considerg taking the company private.

Legg Mason vehemently denied those rumors.

Those rumors started swirling again today, however, because of Mr. Peltz past as an activist investor.

Mr. Peltz—who has made noise investing in corporations such as H.J. Heinz and burger chain Wendy's International Inc.— will surely “be a pain in the neck,” said one observer, who asked that his name not be used because he had not yet been authorized to speak on Mr. Peltz's new appointment.

But if Mr. Peltz desire is to take Legg Mason private, the deal he's worked out with the company would appear to make such a maneuver difficult to pull off.

Peltz's addition to the Legg Mason board is part of an agreement between Legg Mason and Peltz's company, Trian Fund Management LP.

As part of the deal, Trian agreed not to acquire more than a 9.9% stake in Legg Mason. Trian will also vote its shares in favor of Legg Mason's director nominees.

Trian holds about 6.9 million shares of Legg Mason's outstanding common stock.

It's far more likely Mr. Peltz interest in Legg Mason stems from his valuation of the company. Despite the recent spike in the firm's stock price, it's still a bargain, said Burrton Greenwald, a mutual fund industry consultant.

“A very canny investor like Petlz, even though the stock's seen a huge turnaround, he most likely sees it still as a bargain,” Mr. Greenwald said.

Mr. Peltz could not be reached for comment.

But in a statement, he said: "Over the past several months, my colleagues and I have been engaged in constructive dialogue with Mark Fetting and other members of the Legg Mason management team. We share their view that Legg Mason's recent strategic initiatives are improving the Company's operating performance and I look forward to contributing as a Board member and working with the management team and the Board to help this great company achieve its full potential.”

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