As the ink dries on Franklin Resources Inc.'s acquisition of rival Legg Mason Inc., industry sources are sifting through the details to figure out what the acquisition means for the merged firm, its clients, and in particular, its affiliate companies.
For the CEOs, the rationale and benefits are clear: They gain scale, plug gaps in investment capabilities and now have a significant distribution platform to leverage.
"This dramatically enhances (Franklin's) global distribution and presence across geographies, vehicles and channels," said Steven M. Levitt, managing director and founder of the New York-based investment bank Park Sutton Advisors LLC. "There's also some complementary strategies at play, such as real estate and fixed income."
The $4.5 billion deal, announced Feb. 18, creates a $1.5 trillion money manager, to be known as Franklin Templeton. It comes at a time of continued outflows for Franklin and brings together businesses that, between them, run strategies across equity, fixed income and alternatives; as well as institutional, retail and high-net-worth clients. The transaction will also see Franklin take on $2 billion of Legg Mason's outstanding debt.
The share prices of each firm rose following announcement of the deal. Franklin Resources share price was up 3.45% to $25.20 as of Feb. 21, and Legg Mason's was $50.35, a 23.65% jump vs. the share price Feb. 14.
But industry insiders — while appreciative of synergies and the complementary nature of the deal — can't help but wonder how Legg Mason's nine affiliate businesses will be affected.
"What do you do with Franklin's fixed-income business? Do you fold it in with (Western Asset Management Co.)? Do you merge Clearbridge (Investments) with Franklin's global equity platform? I don't know," said one investment banker source, who spoke on condition of anonymity.