CEO’s departure fuels Liberty Financial’s woes

Kenneth Leibler’s decision to quit as chief executive of Liberty Financial Cos. ends a frustrating tug-of-war that had trapped him between his publicly traded company’s shareholders and its privately held majority owner.

Reached at his home in Chestnut Hill, Mass., Mr. Leibler declined to comment on the circumstances surrounding his abrupt departure less than two weeks ago.

But sources close to the 50-year-old executive say he grew tired of battling executives at privately held Liberty Mutual Group, which owns 71.7% of Liberty Financial.

The turmoil comes on top of other significant problems at Liberty Financial, which was managing $61.4 billion in September, the most recent data available.

The company, whose operating units include Stein Roe & Farnham in Chicago and Boston’s Colonial Group, saw long-term fund outflows of nearly $1.5 billion in the first 11 months of 1999, according to Financial Research Corp. in Boston.

Its stock has been one of the worst-performing among money management firms over the past two years. It declined 15% last year and 28.5% in 1998.

By contrast, the Putnam Lovell de Guardiola & Thornton Index of asset management companies gained 15.5% in 1999 and 1.7% the year before.

It hasn’t been all bad news, however. Thanks mainly to a beefed-up sales effort, Liberty’s third-quarter earnings climbed 6.8% to $32.9 million. Also, the company is expected to report record fourth-quarter earnings on Feb. 1.

Chief among the myriad of issues that Mr. Leibler and Liberty Mutual are believed to have disagreed on was the sale of Liberty Financial.

With its stock trading at about $23 a share — below its Sept. 30 book value of $26.90 — Mr. Leibler apparently favored such a move.

But Liberty Mutual, which insiders say depends on Liberty Financial for a significant share of its profits, opposed the idea.

“There’s a belief that the mutual parent is not all that interested in realizing the value of the franchise,” says Larry Sondike, a senior vice president and fund manager at Franklin Mutual Advisors, Liberty funds’ top shareholder with nearly two million shares as of last September.

“I would think that a number of institutions would love to own this asset,” he says.

Liberty Mutual spokesman John Cusolito says Liberty Financial plays an important role in the company’s overall diversification strategy.

What’s more, analysts say Liberty Mutual chairman Gary Countryman, who has assumed Mr. Leibler’s duties until a replacement is found, has made it clear in recent weeks that the company is not for sale.

Mr. Countryman could not be reached for comment.

Mr. Cusolito declined to comment on the possibility of a rift between Mr. Leibler and Liberty Mutual, dismissing such talk as “speculation.”

“Ken Leibler resigned to explore other opportunities,” Mr. Cusolito says.

“He made significant contributions to Liberty Financial and he played an important role in building the company to where it is today.”

Mr. Leibler, a former president of the American Stock Exchange, is said to have battled with his bosses over whether Liberty Financial should buy back its own stock to increase earnings per share and thus the stock’s value.

Another point of contention was whether Liberty Mutual should sell somestock in a secondary offering.

Mr. Leibler wanted the sale to get more stock in the hands of the public and to decrease its volatility, a move that would benefit shareholders, if not the parent, by diluting Liberty Mutual’s stake, several sources say. He, in fact, is the company’s largest individual shareholder, with 1.1% of its stock, according to filings.

“At the levels the stock is currently trading at, it’s very unlikely Liberty Mutual would want to sell any of their shares,” says Alfred Capra, a senior vice president and analyst at Keefe Bruyette & Woods Inc. in New York. “The current ownership structure is just not conducive to creating shareholder value.”

youngest exchange chief

Mr. Leibler’s resignation marks a dramatic turn in what many say is an exceptional career. In 1986, at 36, Mr. Leibler became the youngest president ever of a U.S. stock exchange.

He had joined the American Stock Exchange in 1975 and risen rapidly in senior positions, playing a key role in its diversification from an equities-only market to one that trades stocks, bonds, options and commodities.

In 1990, he quit the Amex to become president and chief operating officer of Liberty Financial, then a $20 billion company whose main business units included Stein Roe and Keyport Life Insurance Co., a Boston insurer.

In an effort to broaden Liberty’s asset base, he guided the company through a series of acquisitions, including two in 1995: Colonial Group, known mainly as a bond shop, and San Francisco’s Newport Pacific Management, which specializes in Asian stocks. In the same year he led Liberty Financial public and became its chief executive.

In 1998, Mr. Leibler oversaw the company’s purchase of Portland, Ore.-based Crabbe Huson Group Inc. and the acquisition of Progress Investment Management Co., a San Francisco asset management firm that matches institutional investors with minority-owned, woman-owned and start-up money managers.

He also spearheaded the formation of a new company in Japan, Liberty Financial Japan Ltd., to sell the services of the firm’s affiliates.

That was also the year of his biggest setback. Liberty announced plans to buy the U.S. mutual fund arm of French bank Societe Generale SA, but a precipitous drop in the unit’s assets following the announcement killed the deal. The SoGen funds eventually were sold to Arnhold and S. Bleichroder Inc.

“Ken had some very good ideas,” says Franklin’s Mr. Sondike. “He was interested in creating value for the firm’s [general public]shareholders.”