BALTIMORE -- The acquisition of large-cap value manager Brandywine Asset Management Inc. will bring to $61 billion the total assets managed by Legg Mason Inc. subsidiaries and will give the holding company its ninth asset management subsidiary.
Legg Mason, Baltimore, said in a recent company report that securities brokerage probably will continue to be the company's main source of revenue. But because earnings from the asset management business are more stable, the percent of total revenue contributed by the investment management subsidiaries is expected to increase.
Investment management subsidiaries provided $183.4 million, or 29%, of Legg Mason's revenue of $640 million for the fiscal year ended March 31. Securities transactions provided 39% of revenue.
The Brandywine deal is Legg Mason's only purchase of an investment management firm this year. But in 1996 the company bought Western Asset Global Management Ltd., London, with $2 billion in assets under management; and Bartlett & Co., a high-net-worth manager with nearly $3 billion in total assets. Legg Mason officials have said the firm intends to expand its asset management business through acquisition and internal growth, and to buy managers with different styles to create a balance of offerings.
Brandywine is a Wilmington, Del.-based active domestic and international equity manager that also handles fixed-income investing. It has about $7 billion in assets under management, the majority of which are from U.S. institutional tax-exempt clients.
Brandywine's 14 shareholders are selling the private firm to Legg Mason in exchange for 2.6 million shares of Legg Mason common stock, which has been selling around $50 per share. The deal has been valued between $130 million and $140 million. It is expected to close in late January.
A Brandywine founder and principal, Anthony Hitschler, said the sale to Legg Mason helps secure the firm's second tier of management. Traditionally, the owners and professional compensa- tion were paid from the firm's excess cash flow.
"In some ways, our ownership structure was an anachronism," Mr. Hitschler said.
Competition made it increasingly difficult to keep staff. With this deal, owners are paid with Legg Mason stock and the younger people can build equity through the excess cash flow, he said.
Brandywine will remain in Wilmington, keep its name and operate with the same management staff. All senior management are under long-term contracts. A chief operating officer will be hired to run the business; the firm does not now have that position.
The two firms had been in discussions since summer.
"We spent quite a bit of time to make sure, and Legg Mason has a history of not managing, so to speak, the subsidiaries," Mr. Hitschler said.