Feb 13 Asset manager Legg Mason Inc named Joseph Sullivan as its permanent chief executive officer on Wednesday, picking an insider to staunch outflows from its funds and smooth relations with its autonomous investment units.
Sullivan had been the company's sales chief and interim CEO, and his appointment was expected. Baltimore-based Legg Mason had been seeking a new CEO since Mark Fetting stepped down under pressure last fall.
Sullivan was also named president and a board member. He had rejoined Legg Mason in 2008 after working there earlier in his career.
In addition, Legg Mason named a new board member, Dennis Kass, who retired last year as CEO of Jennison Associates, an asset-management unit of Prudential Financial Inc.
The choice of Sullivan, 55, will signal to investors that Legg Mason is less inclined to embark on a radical restructuring to address its challenges, analysts have said. The company is coming off nearly five years of outflows from its funds, and relations have been strained between the parent firm and some of its eight semi-autonomous investment units.
"Instead of disrupting the apple cart too much, they went with the guy that they knew, but brought in an outsider to the board," fund industry consultant Roland Meerdter said.
The decision follows a five-month search process led by recruiting firm Korn/Ferry International.
Sullivan's appointment removes an overhang on the shares and allows the company to focus on improving flow trends, Sandler O'Neill analyst Michael Kim wrote in a note to investors.
But the decision also lessens the likelihood of a private-equity buyout of the company, Kim wrote, as some of the affiliates had discussed. Given ongoing declines in assets and uneven performance track records, "we see more limited upside for the shares," said Kim, who kept his "hold" rating on the stock.
Legg Mason shares were trading unchanged in price at $27.91 in early trading, after the news was announced.
Legg Mason Chairman W. Allen Reed struck a conciliatory tone in a statement announcing the appointment, noting that leaders of affiliates helped in the selection process. Reed said among a broad list of qualified candidates, Sullivan had the best combination of management skills and experience.
"Importantly, Joe has developed a relationship with the affiliate leadership teams that the Board believes will enable a collaborative and mutually beneficial process," Reed said.
Sullivan said in the same statement that he will work with the affiliates and others to expand the company from within and through acquisitions.
Sullivan was seen as the inside favorite for the job by some employees and had already made changes during his interim tenure that could foreshadow more to come.
In December, for instance, Legg Mason agreed to buy London-based hedge fund firm Fauchier Partners for $80 million plus up to $56 million in future incentive payments.
Legg Mason also renegotiated its financial arrangements with its Permal investment unit, which Sullivan had previously said could serve as a model for future deals with other affiliates.
With $654 billion under management at the end of January, Legg Mason is one of the largest publicly traded U.S. asset managers, but its shares have lagged those of its peers.
Sullivan's predecessor, Fetting, took over Legg Mason from founder Raymond "Chip" Mason in early 2008, just at the start of the financial crisis that hit the company harder than most. Performance stumbles by one-time star manager Bill Miller also contributed to net quarterly withdrawals of cash by investors.
Fetting restructured Legg Mason and slashed its workforce to cut costs. Both moves were in keeping with the usual agenda of activist shareholder Nelson Peltz, who joined Legg Mason's board in 2009 and holds about 10 percent of its shares.
A spokesman for Peltz's investment firm Trian Fund Management said in a statement on Wednesday that the firm is "enthusiastic" about Sullivan's appointment.
"We believe Joe brings the leadership skills required to strengthen and expand the capabilities of Legg Mason to create long term value for Legg Mason shareholders," the statement read.
It continued that "Trian also believes that Dennis Kass will bring valuable insights and leadership skills to Legg Mason's board as it works closely with Joe to unlock Legg Mason's potential."
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