Legg Mason's stock rose nearly 7.5 percent Wednesday on news that the company will pay off $1.25 billion in senior notes held by private equity firm Kohlberg Kravis Roberts & Co. to reduce its outstanding debt.
Its shares gained $1.67 to close at $24.05 each.
Under the terms of the repurchase, the Baltimore money manager said it will take a $70 million to $80 million noncash charge in its fiscal first quarter.
The move would reduce the company's debt by a net $350 million, Legg said.
Legg also announced a $1 billion plan to buy back more of its shares over the next three fiscal years.
The company sold the convertible notes to KKR in 2008 to shore up its balance sheet amid the financial crisis. Fallout from the subprime credit market had forced Legg to reduce its holdings of so-called structured investment vehicles, costing it tens of millions of dollars in charges.
The notes were due in 2015.
The company plans to pay for the KKR repurchase by refinancing the notes as well as using $250 million from its existing credit facility, cash on hand and other borrowings.
As part of the transaction, KKR's representative on Legg's board of directors, Scott Nuttall, will step down. KKR will retain new warrants that would allow the firm to purchase 14.2 million of Legg's shares at $88 per share, an option that expires in July 2017.
Mark R. Fetting, Legg's CEO and chairman, noted that the company would refinance the notes from a "diverse investor base and multiple sources."
The stock buyback would be paid for in part by using up to 65 percent of the cash generated from operations, the company said.
"With this efficient capital structure, we will also have the flexibility to return a significant portion of the cash we generate to our shareholders when it's appropriate to do so," Fetting said in a statement.