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Baltimore’s Legg Mason to be acquired by California investment giant Franklin Templeton

Baltimore stands to lose one of its last few remaining large public companies headquartered in the city after a California-based mutual fund giant announced a $4.5 billion deal Tuesday to acquire Legg Mason, an institution with 121 years of roots in the city.

The loss of Legg Mason’s corporate presence would be just the latest in a long string of big business casualties for Baltimore and another blow to the city’s legacy as a regional financial stronghold. Legg Mason would join a list of tombstoned headquarters that includes Constellation Energy Group, Black & Decker, USF&G, Alex. Brown & Sons and Maryland National Bank.

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Franklin Templeton, best known for its consumer-oriented mutual fund business, will pay $50 cash for each share of Legg Mason’s stock, a premium of $9.28 per share over Friday’s closing price. Legg Mason’s stock surged 24% to close at $50.66 a share Tuesday.

By folding in the $806 billion managed by Legg Mason and its multiple affiliates, San Mateo, California-based Franklin Templeton will more than double to $1.5 trillion in assets under management.

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What the deal means for Baltimore, where Legg Mason’s decade-old tower of money-colored glass rises over the river in Harbor East, is unclear. The company has about 250 employees in the city and about 3,000 total in affiliates and offices in other cities and countries.

“Franklin Templeton has made it clear to us, and clear to me, they intend to maintain a presence in the city,” Joseph A. Sullivan, Legg Mason CEO, said in an interview Tuesday. “It won’t be the same presence. They’re not going to have two headquarters. ... There will be a loss of jobs here in Baltimore. It’s tough to say."

But opportunities will exist for Legg employees, as the merged company determines its appropriate size, with an eye toward growth, and looks for people to fill jobs, Sullivan said.

“They want to go with the best talent,” he said, noting that telecommuting has become more viable than in years past.

Still, the loss will be painful.

“It’s just a continuing downward trend of businesses in Baltimore when we’re sorely in need of a win,” said Aris Melissaratos, the former Maryland secretary of economic development, who until last year was dean of Stevenson University’s Brown School of Business and Leadership.

Legg Mason is rivaled only by T. Rowe Price Group and Under Armour as a big corporate name based in Baltimore, though such firms as McCormick & Co. and W.R. Grace have home offices in the suburbs.

The company has survived multiple market booms and busts since its predecessor’s founding in 1899 — from the Great Depression to the housing and financial crisis that precipitated the most recent recession. Multiple acquisitions and mergers over time led the one-man George Mackubin & Co., opened on Redwood Street downtown, to the modern-day company, which adopted the name Legg Mason in 1970. Since then it’s grown and even had a star mutual fund manager, Bill Miller, who handily beat the S&P 500 for 15 consecutive years before fading and leaving the firm in 2016.

Local leaders still were taking in the news Tuesday and assessing the effects on the city and surrounding area. But the loss of a headquarters is known to hurt a city’s economy and charitable organizations.

Baltimore Mayor Bernard C. “Jack” Young said he is “sad for the people who might be losing their jobs or who might be moving to other parts of the Legg Mason team.”

Donald C. Fry, president and CEO of the Greater Baltimore Committee, called the acquisition an “unfortunate” byproduct of consolidation in the banking and finance sectors.

“Franklin Templeton has indicated the transition will take some time and that it intends to keep a presence in Baltimore,” Fry said. "It’s hopeful that the company’s presence will remain a strong contributor to the state and regional economy.”

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Karyl Leggio, a Loyola University Maryland finance professor, agreed it was a sad day for Baltimore. The acquisition, however, was not unexpected, she said, given Legg’s concentration in active investing, which comes with sometimes hefty fees that individual and institutional investors have become loathe to pay. The firm didn’t adjust fast enough to compete with so-called passive investment firms that operate funds based on a formula, often to track an index such as the S&P 500.

“It’s tough from a Baltimore perspective, but from a financial industry perspective it’s not surprising,” she said. “Money has been flowing out of actively managed funds. Legg didn’t have what investors are demanding now."

She said it’s possible that Franklin Templeton allows Legg to keep its name — and its name on its building — for some time.

“They have been a good civic partner in Baltimore, and I expect that to continue but maybe not as strongly as it was historically,” she said.

The announcement comes less than a year after Legg Mason restructured and laid off 120 corporate employees, including some in Baltimore. The firm also pulled out of its longtime sports sponsorships with the Orioles and Ravens.

The two companies said they expect to achieve $200 million in cost savings through “parent company rationalization and global distribution optimization.”

Sullivan said executives will assess staff needs in various departments, most likely over the next six months. It is too soon to know how many and where layoffs will occur, he said, but he expects some cuts at both firms. The company also likely won’t need as much space in its tower, he added.

Gov. Larry Hogan’s office deferred to the Maryland Department of Commerce, which issued this statement on Legg Mason: “While it’s too early to speculate, we value our long standing relationship with Legg Mason and we will work closely with the company in the weeks ahead to determine what, if any, impact this announcement will have on Maryland.”

Melissaratos said the acquisition is yet another loss of a hometown business, a “marquee name,” to out-of-state ownership.

While Baltimore enjoys “phenomenal” assets, particularly in higher education and cultural institutions, that doesn’t seem to translate into the business sector, Melissaratos said. He attributes part of that to Baltimore’s well-documented urban ailments, from the public schools to crime.

And while the losses are troublesome, things can turn out better than expected. He noted how the acquisition of Alex. Brown led many of its alumni to start their own companies, such as Brown Advisory investment firm.

Bill Miller already opened his own firm in Baltimore after leaving Legg Mason.

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Responding to the planned acquisition, Miller said in an email that consolidation makes sense as a way to reduce costs, diversify products and achieve economies of scale.

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“The price appears reasonable,” he added.

There’s been rapid consolidation among U.S.-based asset managers in recent years. While that’s expected to continue as firms look to increase scale and eliminate underperforming products, some analysts still weren’t expecting Legg Mason would be acquired.

Analysts at Morningstar said in a Tuesday report that they had expected Legg Mason and Franklin Templeton would be buyers rather than one of them selling. However, they added, they were “big proponents” of the consolidation as a way to offset declining fees and other problems.

Founded in 1947 on Wall Street in New York City, Franklin Templeton was named for Benjamin Franklin because he “epitomized the ideas of frugality and prudence when it came to saving and investing,” according to the company website. It relocated to California in 1973.

Sullivan said he “wasn’t looking to sell the company,” but when he met with Franklin Templeton to discuss joining forces, “they had the financial resources to do this in a way we would not.”

In the announcement, Sullivan described an “incredibly strong fit” between the companies that “will create meaningful long-term benefits for our clients and provide our shareholders with a compelling valuation for their investment.”

As part of the deal, EnTrust Global, a Legg Mason affiliate in New York that provides alternative investments, and Franklin Templeton agreed that EnTrust will repurchase its business but maintain an ongoing relationship with Franklin Templeton.

The sale of Legg Mason also appears to satisfy activist investor Nelson Peltz, who has been pushing for years to get more value out of Legg Mason. His Trian Fund Management L.P., which owns about 4 million shares of outstanding stock of Legg Mason, entered into a voting agreement to support the transaction.

“This is the right transaction for our clients, for our shareholders, and as difficult as it is today, and it’s a tough day around Legg Mason and Baltimore, we know it’s the right thing to do," Sullivan said. "If we do the right thing for clients, everything else takes care of itself.”

Baltimore Sun reporters Colin Campbell, Jean Marbella and Lillian Reed, and librarian Paul McCardell contributed to this article.

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