Franklin-Legg Mason Deal Expected to Close in Q3

San Mateo, Calif.-based Franklin Resources announced Feb. 18 that it has entered into an agreement to buy Legg Mason for $4.5 billion in cash, creating a $1.5 trillion asset manager. The deal is expected to close in the third quarter of 2020, pending approval from regulators and other parties.

The merged firm will operate under the Franklin Templeton name, though Baltimore-based Legg Mason and eight of its nine investment affiliates will continue to operate autonomously. (EnTrust Global, an alternatives investment manager, is buying itself back.) Franklin president and CEO Jennifer Johnson and the senior leaders at each of the Legg Mason affiliates are expected to remain in place.

Large and midsize fund firms have been combining in recent years in part because of competition from low-cost exchange-traded funds offered by a few giant companies such as Vanguard and BlackRock. Many fund company executives as well as outside observers believe that only larger firms will survive this trend, leading to consolidation. For example, Janus and Henderson merged in May 2017, and Standard Life bought Aberdeen in August 2017. In 2019, Invesco bought OppenheimerFunds from MassMutual.

The combination of Franklin and Legg Mason will be the largest such consolidation within the past several years, and the new entity would have a much heavier focus on fixed-income (expected to account for nearly half of managed assets), with roughly one third in equities. Alternatives, multi-asset strategies, and money market funds would account for the remaining assets under management. This shift toward fixed income is the result of Western Asset Management’s significant platform, which accounted for more than half of Legg Mason’s managed assets. This will significantly expand Franklin’s fixed-income business and give it diversification away from the Global Macro Team’s strategies led by Michael Hasenstab, which account for a large share of Franklin’s current fixed-income platform and have experienced significant outflows recently.

Overall, there is a good deal of overlap across Franklin and Legg Mason’s fixed-income and equity lineups, for both global and U.S.-focused strategies as well as across the firms’ multi-asset offerings. The firms have not announced any decisions about integrating the families’ fund lineups, including whether some funds might be merged or liquidated in areas where there is overlap.