Two of the United States' pioneers in the asset management business have announced plans to merge together in an effort to compete with low-cost index funds. Asset management firms Franklin Templeton Investments, or Franklin Resources, announced on Tuesday its plans to acquire Legg Mason in a deal worth $4.5 billion.
The merger of the two companies will result in a new firm with a combined $1.5 trillion in managed assets. Franklin Resources revealed that it has agreed to purchase Legg Mason in a deal that values the latter at close to $4.5 billion.
Franklin Resources agreed to pay $50 per Legg Mason share, a price representing a 23 percent premium over the company's share prices as of Friday's closing last week. Franklin Resources has also agreed to assume Legg Mason's standing $2 billion in debt.
Franklin Resources executive chairman of the board, Greg Johnson, mentioned in a statement that the deal is a landmark acquisition for the company given how it should be able to unlock substantial value and growth opportunities. He added that with greater scale and balance across both companies' investment strategies, the merged company should be more equipped to deal with the challenges facing the industry.
Following the announcement, Franklin Resources' shares surged by 5.5 percent, while Legg Mason's stock prices skyrocketed close to 24 percent in New York. The move by Franklin Resources and Legg Mason, companies that was founded in 1947 and 1899, respectively, comes as customers continue to focus more on the costs of money management.
The added pressures have caused a number of large-scale mergers within the asset management industry in recent years. Companies such as Invesco and Oppenheimer Funds have chosen to band together to take on the new challenges. In 2017, Janus Henderson Group Plc and Standard Life Aberdeen Plc was established through massive mergers than changed the asset management landscape.
In the brokerage sector, massive mergers have also become frequent. Last year, Charles Schwab Corp acquired its rival TD Ameritrade Holding Corp in a deal valued at over $26 billion.
The acquisition of Legg Mason did not come as a surprise to investors following the company given the challenges it had to face. Last year, the company announced that it would cut around 12 percent of its staff and cut its executive committee by half. Trian Fund Management, which owns a 4.5 percent stake in Legg Mason, and its founder Nelson Peltz previously stated that their strategy for the fund manager will be to reduce costs and increase profitability.
