A dispute between executives at Western Asset Management Co. and parent Legg Mason Inc. over who should handle distribution in the defined contribution and retail markets is fueling the firms' possible split.
If not resolved, sources warn of a staff exodus at WAMCO.
The conflict comes as the very future of Baltimore-based Legg Mason is at stake.
Some analysts view publicly traded Legg — a holding and distribution company for its nine principal investment affiliates — as a potential candidate for a breakup. The firm has struggled, without much luck, to regain its footing following the financial crisis. Plus, Legg Mason CEO Mark Fetting resigned Oct. 1 after failing during his almost five-year tenure to stem net investment outflows or increase the company's stock price, which trades for around a quarter of what it did before Mr. Fetting joined in January 2008.
On an Oct. 26, conference call with analysts, interim CEO Joseph Sullivan said that Legg Mason was committed to its affiliate model but noted the company in previous years has sold or merged affiliates
“These are things that we have done in the past and we're going to be open to doing in the future,” he said.
For officials at WAMCO, Legg Mason's largest affiliate with $460 billion in assets as of Sept. 30, some type of change is necessary.
A steady stream of investment bankers from key firms including Goldman Sachs & Co. and Morgan Stanley have had discussions with Western Asset CEO James Hirschmann over the past few months, seeking to structure a deal that would allow the fixed-income manager to break away from its parent and operate as a stand-alone company, informed sources say.
The sources say a whole host of investment banking firms have had discussions with Mr. Hirschmann. “Pretty much all of them,” said one source. Two separate sources said the meetings are preliminary, and that WAMCO's senior management is still in the “fact-finding phase” as to whether a management buyout aided by a private equity partner, or an outright sale to another money manager, could be possible.
A third source said Mr. Hirschmann has forwarded all information from these discussions to Legg Mason officials and the company board. Any deal, the sources noted, would ultimately have to be approved by the board.
Mr. Hirschmann did not return phone calls seeking comment; Legg Mason spokeswoman Mary Athridge said firm officials would have no comment.