Legg buys Pa. firm; Berkshire Asset manages money for well-heeled accounts; Building the high end; 'We need to diversify our assets,' Mason explains


Legg Mason Inc. added another piece to its growing asset-management business by acquiring Berkshire Asset Management Inc. in a cash deal for an undisclosed price, the companies said yesterday.

Berkshire Asset, an investment management firm based in Wilkes-Barre, Pa., has $600 million under management in equity, fixed income and balanced accounts for institutions and wealthy individuals.

Raymond A. "Chip" Mason, chairman and chief executive officer of Legg Mason, said the deal will help the Baltimore-based firm continue building a "wealth-management company."

"We need to diversify our assets," Mason said. "We made it pretty clear that one of our major objectives was to build the high net-worth business."

Assets in Legg's high net-worth business total about $5 billion to $6 billion, and represent about 6.5 percent of Legg's total assets, which were $93.4 billion June 30.

"It really ought to be higher than that," Mason said. "We need to build that out."

The acquisition wasn't a surprise because Legg has been looking for deals.

"Legg Mason is beating the bushes trying to find similar asset managers at reasonable prices," said Michael Flanagan, a brokerage analyst at Philadelphia-based Financial Service Analytics. "I know they are out there looking hard, but the price tags on some of these investment-management companies are exorbitant."

Legg and Berkshire, which is not related to investor Warren E. Buffett's Berkshire Hathaway Inc., began talking about nine months ago after Berkshire hired an investment banker to explore alternatives to running the company independently.

Berkshire had been approached over the past several years by about six companies, said Michael H. Cook, president and chief executive officer.

"We just felt that Legg was the right organization for what we wanted to do over the next 10 years or so," Cook said. "We were looking to align ourselves with a partner that we thought could give a lot of capabilities to this organization that would be very beneficial for our clients."

Berkshire will keep its name and management and operate as a wholly owned subsidiary of Legg Mason, according to the agreement, which was signed Thursday. Cook and Kenneth J. Krogulski, the firm's chief investment officer, will continue in their positions and have agreed to long-term employment contracts.

Berkshire's average account size is $5 million. The firm requires at least $1 million to open an account.

Its performance has been exceptional, with the company returning 21.99 percent on average over the past 10 years, compared with the benchmark Standard & Poor's 500 stock index's 18.76 percent, the company said.

Mason said the addition of Berkshire will help Legg build its trust business by enabling the firm to sell trust products to the new clients.

Legg has been on a mission to expand Legg Mason Trust Co. In May, it received approval from federal regulators to operate a savings and loan that will allow it to offer trust services to customers nationwide.

Two months later, Legg hired Charles W. Cole Jr., former chief executive officer of First Maryland Bancorp; and Jennifer W. Lambdin, former president and chief investment officer of Allied Investment Advisors Inc., to head Legg Mason Trust.

"Right now, the acquisition fits very nicely with Legg Mason's strategy of acquiring niche investment-management businesses," Flanagan said. "It brings Legg Mason much closer to being a full-fledged trust company."

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