Sullivan Makes Nice With a Familiar Legg Mason Backer
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Wednesday, May 22, 2019

Sullivan Makes Nice With a Familiar Legg Mason Backer

Joe Sullivan and his team are accommodating a familiar activist investor by increasing the size of Legg Mason's [profile] board of directors.

Joseph A. Sullivan
Legg Mason Global Asset Management
Chairman & CEO
On Monday, Sullivan, chairman and CEO of Legg, confirmed that Trian Partners is taking two Legg board seats immediately as the Legg board increases from 10 members to 12. Trian CEO Nelson Peltz will take one of those new seats, while Trian chief investment officer Ed Garden (who is stepping down from his board spot at BNY Mellon) will take the other. Word leaked last week that Peltz might soon be pushing for changes at Legg, echoing Peltz's first Legg push a decade ago. Trian now owns about 4.5 percent of Legg.

"We welcome Trian's return as a significant Legg Mason shareholder and the addition of Nelson and Ed to our board of directors," Sullivan states.

"We look forward to working again with Joe Sullivan and his team, together with a refreshed Board, to further build and execute on the company's three most important priorities — significantly reducing costs, driving revenue growth organically and through acquisition, and increasing profitability," Garden and Peltz state.

Garden and Peltz joined the Legg board effective immediately, plus Peltz's team will also get to pick a third independent director, and the Legg board will appoint at least two more independent directors; those candidates will be presented for approval at Legg's upcoming annual meeting of stockholders. Those three TBD candidates, if approved by shareholders, will replace three outgoing Legg directors, including 17-year Legg director Kurt Schmoke, president of the University of Baltimore (Baltimore is Legg's hometown), who told the company last week that he won't stand for reelection at the annual meeting.

According to Legg, two of the departing directors "have reached the Company's retirement age guidelines." Legg's two oldest directors are: 16-year Legg director Peggy Richardson (75), former U.S. Commissioner of Internal Revenue; and 10-year Legg director Barry Huff (74), retired vice chairman of Deloitte. Other current board members include: Sullivan himself; former OpFunds CEO John Murphy; former AT&T Investment Management Corporation chief Robert Angelica; former Tyco controller and chief accounting officer John Davidson; Ignition Partners partner Michelle Goldberg; retired State Street global human resources chief Alison Quirk; and retired GM Asset Management Corporation chief Allen Reed.

Mister market seems like Trian's involvement so far, as Barron's notes. The deal was announced after the market closed on Monday, and Legg's shares (LM on the NYSE) rose 3.45 percent yesterday to $36.89.

Yet not everyone is cheering the deal. Neal Epstein, senior vice president at Moody's, calls Trian's move "credit negative for Legg Mason." He worries that, while cost-cutting will boost margins, the Trian deal "follows evidence of internal discord" at Legg.

"High leverage constrains significant strategic moves," Epstein states.

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