Legg Mason
Tuesday Sep 23 2008 14:40
The share price of US fund manager Legg Mason (NYSE:LM) briefly bounced 28 per cent on Monday even as the company angrily denied a tabloid report that it was planning to go private and sell off subsidiaries. Shareholders and some managers at the beleaguered firm may be wishing it were true.
In a lousy market for asset management, Legg Mason has done particularly poorly, sinking by 54 per cent over the past year. It reported the first quarterly loss in its 25-year history as a public company in January, replacing founder "Chip" Mason as chief executive, and now trades at a mere 0.82 times book value. Four competitors trade at an average price to book of 3.3 times while their prospective price to earnings ratios are two-thirds higher and their market value to assets under management about four times as high.
Bill Miller, once the firm's star fund manager, has gone from being a huge asset to someone now notorious for some uncharacteristically ill-judged bets on Freddie Mac, Countrywide, Bear Stearns and others. The only man to beat the S&P 500 15 years straight has seen his main fund's assets decline from $21bn at their peak last June to less than half that.
An even bigger problem has been Legg Mason's ailing money market funds. Though it has not "broken the buck", as one competitor did recently, a number of them needed to be bailed out by the parent with a total of $2.7bn committed to the effort so far. Rating agency Moody's put the company on watch for downgrade as a result.
Still, it has many great brand names untarnished by the parent's woes and competitors covet the roughly $900bn it manages. A deal would be complicated by revenue-sharing agreements for the numerous firms it acquired when times were good, but one silver lining for any buyer amid the financial carnage is that retaining talent has become a bit easier.
