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Monday, 09/22/2008 3:25:22 PM

Monday, September 22, 2008 3:25:22 PM

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Legg denies it's going private, stock falls
Monday September 22, 3:17 pm ET
By Muralikumar Anantharaman

BOSTON (Reuters) - U.S. asset manager Legg Mason Inc (LM - News) denied on Monday a published report that it plans to go private to escape a worsening credit crisis.

Legg Mason's shares fell as much as 12 percent on Monday in a weak overall market, signaling that investors did not rate the chances of the second-biggest publicly traded U.S. asset manager going private as being high.

"While we don't normally comment on market rumors, in this uncertain time we want to be clear that The New York Post story is not true and Legg Mason's strategy has not changed," Legg Mason spokeswoman Mary Athridge said.

The Post quoted sources familiar with the situation as saying Legg had been weighing a move that could see one or more private equity investors, including Kohlberg Kravis Roberts & Co (KKR.UL), buy it and spin off many of its numerous funds.

A KKR spokeswoman declined to comment on the Post story.

KKR pumped in $1.25 billion into Legg Mason in January through convertible notes, which yield 2.5 percent and can be converted into Legg stock at $107.46 a share.

An analyst at a Washington, D.C.-based hedge fund, which owns Legg shares, told Reuters it was unlikely that KKR would want to raise its exposure to Legg, given that the drop in Legg's stock price had hurt its initial investment.

Moreover, management owned only a small stake in the firm -- less than 3 percent -- reducing the incentive to take the company private, the analyst, who did not want to be identified, said.

Jean-Marie Eveillard, portfolio manager of First Eagle Funds, which owns $100 million of Legg shares, said the stock's drop on Monday suggested investors did not believe the going-private story.

"Money management is a very good business model, so I'm not surprised that there would be a rumor that they are trying to go private," Eveillard said.

Legg Mason shares are among the worst performers in the sector this year -- down 48 percent -- hurt by the exposure of its money-market funds to toxic debt securities and the poor performance of its top money managers, including Bill Miller.

Only last week, Legg said it will pump an additional $630 million into its money market funds, which have been hit by declining values of holdings of asset-backed commercial paper. Credit Suisse cut its earnings estimates for Legg and price target on the stock to $40 from $42 following the announcement.

Legg has spent $1.1 billion to shore up its money-market funds since late 2007 and posted net losses in its two most recent quarters because of charges taken.

Miller, once considered the best stock picker in America, has had a miserable 2008, with the flagship Legg Mason Value Trust fund down 32 percent through Friday's close because of its big bets on financial stocks.

The fund's size had also dropped to $9.7 billion as of the end of June from $16.5 billion at the start of 2008. Institutional investors, such as the Massachusetts pension fund, have bailed out from Miller's fund due to the underperformance. Legg also recently lost a mandate from the pension fund representing Baltimore's police and firefighters.

"Legg Mason is not one of our large holdings, but it is a holding which I am not proud of because the stock has come down," said Eveillard of First Eagle Funds.

Legg managed $922.8 billion of assets as of the end of June. Its shares were down $2.20 at $38.25 in afternoon trade on the News York Stock Exchange.

(Editing by John Wallace and Bernard Orr)