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Peltz appointment raises privacy issue

Though likely to remain public for now, Legg spurs talk by adding activist

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By David Hoffman

November 1, 2009 6:01 am ET

The appointment last week of billionaire activist investor Nelson Peltz to Legg Mason Inc.'s board is rekindling speculation in the industry that the asset management giant eventually will be taken private — but experts said that the company will likely remain public in the near term.

For now, investment management observers noted, Mr. Peltz, who now owns slightly more than 4% of the company, appears happy with the direction in which it is moving.

“Improvement still will be somewhat challenging for them in the near term,” said Robert Lee, an analyst with Keefe Bruyette & Woods Inc. 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 Mason was experiencing substantial mutual fund outflows — that the firm's executives were considering taking the company private.

The company vehemently denied those rumors.

The speculation started swirling again last week, however, because of Mr. Peltz's past as an activist investor.

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

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

His addition to the board is part of an agreement between Legg Mason and Mr. 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 is far more likely that Mr. Peltz's interest in Legg Mason stems from his valuation of the company. Despite the recent spike in its stock price, it is still a bargain, said Burton Greenwald, a mutual fund industry consultant.

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

Mr. Peltz couldn't be reached for comment.

E-mail David Hoffman at -dhoffman@investmentnews.com.

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