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Legg Mason's largest shareholder, Singapore's Shanda Group, increases investment

Legg Mason's largest shareholder, Singapore's Shanda Group, increases investment
The Legg Mason headquarters at 100 International Drive in Harbor East. (Kim Hairston / Baltimore Sun)

A Chinese billionaire who made his fortune in internet gambling is doubling down on his investment company's stake in Legg Mason, the Baltimore money management firm where it already is the largest shareholder.

Legg Mason announced that Tianqiao Chen's Shanda Group will increase its stake in Legg Mason to up to 15 percent from 10 percent and invest another $500 million in investment products offered by Legg affiliates.

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As part of the deal, Chen, who is CEO of the Singapore-based investment firm, and Shanda President Robert Chiu will join Legg's board of directors by June.

The agreement sent Legg Mason's stock price, which has treaded water this year, up 2.5 percent to close at $30.88 a share. At that price, Shanda would need to invest about $160 million to acquire the additional 5 percent stake in Legg.

The deal comes as Legg eyes international growth and gives the asset manager a strong partner in the key Asia market.

"China, specifically, is a big untapped market at this point," said Macrae Sykes, a research analyst with Gabelli & Co. in Rye, N.Y. "With Shanda, with their leadership in that market on technology and financial services, there should be some ability to leverage those connections."

Chen made his fortune as a pioneer in China's online gambling industry. He founded Shanda Group in 1999 and built it into one of the largest internet conglomerates in China. The company has since turned into a private investment firm, and one that has taken a keen interest in U.S. deals.

In June, Shanda raised its stake in Lending Club Corp., a San Francisco-based online lending company, after its CEO was ousted. In August, Shanda became the largest shareholder of Community Health Systems, a Fortune 500 firm based in Tennessee that is one of the largest hospital services providers.

At the beginning of December, Chen and his wife, Chrissy Luo, donated $115 million to the California Institute of Technology to establish a neuroscience center and support brain research there. They made the donation after seeing a news report about how a Caltech scientist developed a robotic arm that could be controlled by a quadriplegic's thoughts.

Shanda acquired its 10 percent stake in Legg in April, when it bought 10.5 million shares from Trian Fund Management, the New York firm run by activist investor Nelson Peltz.

Trian started acquiring Legg stock in 2009 and was actively involved in helping Legg rebound from the 2008 financial crisis. Trian began backing out of Legg in 2014, when Peltz stepped down from his position on Legg's board.

"To me, it speaks to Trian saying we have eked value out of Legg and it's time for a different group of investors to come in and be engaged in helping Legg Mason create value for their shareholders," said Karyl B. Leggio, a finance professor at Loyola University Maryland.

Shanda might not plan to be as hands-on as Trian, but taking two seats on the board, including Chen serving as vice chairman, signals Shanda has ideas for how to enhance Legg's value, she said.

"Ten percent of a company the size of Legg is a significant investment, and the fact that they're interested in putting in more money speaks to their commitment," Leggio said.

Under the agreement, Shanda will not acquire more than 15 percent of Legg's outstanding stock or initiate proxy solicitations during a three-year period.

With Chen's deep experience in technology, he could be an asset to Legg in responding to changes in the financial management industry brought on by the growing importance of technology and big data in investment strategy, analysts said.

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"Particularly as technology becomes an important component of serving clients, we believe that we can offer Legg Mason a helpful perspective with our own experience and resources," Chen said in a statement. "Shanda believes Legg Mason is well-positioned to enjoy continued success, and is delighted to have the opportunity to further strengthen our partnership."

In shareholder meetings and earnings calls, Legg CEO Joseph A. Sullivan has stressed that diversification — in terms of what products it offers clients, how clients can access those products and the company's geographic reach — is central to Legg's growth strategy and future success.

"Being global has never been more important than it is today," Sullivan said at the company's annual shareholders meeting in July.

On Monday, Sullivan underscored Shanda's commitment to invest heavily in products by Legg's affiliates and the firm's value as an international partner.

"As we work to enhance the company's ability to serve our global investors, we find their expertise in important areas of growth to be invaluable," Sullivan said in a statement. "Shanda's plan to invest a significant amount of capital in the investment products of Legg Mason affiliates demonstrates, in a very meaningful way, Shanda's conviction in Legg Mason."

Details of how Shanda's $500 million will be invested across Legg affiliate products have not been disclosed.

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