Legg Mason Inc (LM) and Citigroup Inc (C) announced a $3.7 billion deal under which Citigroup will trade substantially all its asset management business for Legg Mason's brokerage operations.
The Citigroup business has $437 billion in assets under management. The unit includes its Smith Barney mutual funds. The deal excludes Citigroup's asset management business in Mexico, its retirement business in Latin America, and its interest in CitiStreet.
Citigroup is acquiring Legg Mason's private client brokerage and capital markets businesses, about $1.5 billion in Legg Mason common stock and nonvoting convertible preferred stock and about $550 million in the form of a five-year loan facility provided by Citigroup's corporate and investment bank.
Separately, Legg Mason said it will acquire the Permal Group, a manager of funds-of-hedge-funds that oversees about $20 billion in assets.
Legg Mason will have more than $830 billion in managed assets following the completion of the two deals. The transactions will make the company the fifth largest money manager and fifth largest mutual fund manager in the U.S. Following the closing of the Citigroup deal, Legg Mason will distribute its asset management products through the Citigroup system.
Leg Mason said it expects the transactions to "generate substantial accretion" to its "cash earnings per share" in the first year after the deals close.
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