Legg Mason Raises $1.25 Billion of Additional Capital Through Sale of Convertible Senior Notes to KKR
January 14 2008 - 5:31PM
PR Newswire (US)
Repurchases 2.5 Million Shares from Citigroup, Inc. BALTIMORE, Jan.
14 /PRNewswire-FirstCall/ -- Legg Mason, Inc. (NYSE:LM), a global
asset management firm with approximately $1 trillion under
management, today announced that it has increased its capital base
by $1.25 billion through the sale of 2.5% convertible senior notes
to an affiliate of Kohlberg Kravis Roberts & Co. ("KKR"). The
proceeds from the investment will strengthen Legg Mason's balance
sheet by providing additional liquidity and will also be used for
general corporate purposes to support key business initiatives such
as potential future acquisitions. KKR, one of the world's oldest
and most experienced private equity firms and alternative asset
managers, will be a minority investor. The Company will also use a
portion of the capital raised to purchase from Citigroup, Inc., and
then retire, preferred stock convertible into 2.5 million shares of
Legg Mason common stock. Key terms of the transaction, which is
expected to close by February 5, 2008, are as follows: -- KKR will
purchase $1.25 billion of 2.5% non-voting, contingent convertible
senior notes due in 2015. The notes are convertible, if certain
conditions are met, into cash up to the $1.25 billion principal
amount of the notes and, with respect to any excess conversion
value, into either cash or shares of Legg Mason common stock, or a
combination of cash and common stock, at the Company's option. --
In connection with the transaction, in which KKR has conversion
rights at $88 per share of common stock, Legg Mason has entered
into hedging transactions with certain financial institution
counterparties to increase the effective conversion price of the
notes to $107.46 per share of common stock. -- In a related
transaction, Legg Mason has agreed to repurchase and retire Legg
Mason preferred stock which is convertible into 2.5 million shares
of its common stock that is currently owned by Citigroup Inc. --
With limited exceptions, KKR is subject to stand-still provisions
under which it will not purchase any Legg Mason stock without prior
consent from Legg Mason. -- In connection with this transaction,
KKR Member Scott C. Nuttall will be recommended for election to the
Legg Mason Board of Directors. "We have materially increased the
Company's liquidity which enables us to better manage in a volatile
marketplace, as well as to position the firm for future growth,"
said Raymond A. "Chip" Mason, Chairman and Chief Executive Officer
of Legg Mason. "We carefully considered a number of options with a
number of institutions, including accessing the public markets, and
decided that this transaction, with a firm as respected as KKR, was
the best option for our shareholders." Scott C. Nuttall, a Member
of KKR, said, "We are proud to be an investor in one of the world's
leading asset management franchises. Legg Mason has built a world
class organization with a trillion dollars in assets under
management diversified across fixed income and equities in both
traditional and alternative strategies. KKR has a 20-year track
record of investing in strong financial services companies with a
focus on long-term value creation. We believe Legg Mason has a very
bright future and we look forward to working with management and
the Board to deliver outstanding returns to all stakeholders."
Third Quarter of FY 2008 Earnings Information The Company also
announced that it expects earnings per share for the quarter ended
December 31, 2007 to be between $1.04 and $1.09 per diluted share,
as compared to $1.21 per diluted share for the quarter ended
December 31, 2006. Excluding a charge of $0.16 per diluted share,
related to a reduction in the market value of Asset Backed
Commercial Paper ("ABCP") held by certain of the Company's money
market funds, diluted earnings per share are expected to be between
$1.20 and $1.25. The charge of $0.16 per diluted share is up
slightly from the previously announced $0.15 per diluted share at
December 28, 2007, as a result of subsequent changes in the market
value of the ABCP securities. Legg Mason estimates that its assets
under management ("AUM") at December 31, 2007 were approximately $1
trillion, reflecting a decline of 1% from AUM of $1.012 trillion at
September 30, 2007, and an increase of 6% from $945 billion at
December 31, 2006. Continued declines in equity AUM during the
December 2007 quarter, as a result of net client outflows and
market depreciation, were offset in part by higher fixed income
AUM, resulting from both net client inflows and market
appreciation. Liquidity AUM increased slightly during the quarter.
About Legg Mason Legg Mason, Inc. is a global asset management
firm, providing active asset management in many major investment
centers throughout the world. Legg Mason's principal subsidiaries
are Western Asset Management, Batterymarch Financial Management,
Brandywine Global Investment Management, ClearBridge Advisors, Legg
Mason Capital Management, The Permal Group, Private Capital
Management and Royce & Associates. Legg Mason is headquartered
in Baltimore, Maryland and its common stock is listed on the New
York Stock Exchange (symbol: LM). About KKR Established in 1976,
KKR is a leading global alternative asset manager. The core of the
Firm's franchise is sponsoring and managing funds that make private
equity investments in North America, Europe, and Asia. Throughout
its history, KKR has brought a long-term investment approach to
portfolio companies, focusing on working in partnership with
management teams and investing for future competitiveness and
growth. Additional funds that KKR sponsors include KKR Private
Equity Investors, L.P. (NYSE Euronext Amsterdam: KPE), a permanent
capital fund that invests in KKR-identified investments; and two
credit strategy funds, KKR Financial (NYSE:KFN) and the KKR
Strategic Capital Funds, which make investments in debt
transactions. KKR has offices in New York, Menlo Park, San
Francisco, London, Paris, Hong Kong, and Tokyo. Hedging
Transactions In connection with the transaction, Legg Mason has
entered into convertible note hedge and warrant transactions with
certain financial institution counterparties (the "hedge
counterparties") to increase the effective conversion price of the
notes from $88 to $107.46 per share of common stock. The
convertible note hedge and warrant transactions are expected to
reduce potential dilution to Legg Mason common stock upon
conversion of the notes. In connection with the convertible note
hedge and warrant transactions, the hedge counterparties have
advised Legg Mason that they or their affiliates expect to enter
into cash settled swaps with Citibank N.A., on common stock of Legg
Mason and/or purchase shares of common stock of Legg Mason to
establish their initial hedge position with respect to the
convertible note hedge and warrant transactions. Thereafter the
hedge counterparties may from time to time purchase or sell common
stock of Legg Mason in secondary market transactions and/or enter
into or unwind various derivative transactions with respect to the
common stock of Legg Mason. These activities could adversely affect
the price of Legg Mason common stock. This release contains
forward-looking statements subject to risks, uncertainties and
other factors that may cause actual results to differ materially.
See "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Legg Mason
Annual Report on Form 10-K for the year ended March 31, 2007 and in
its subsequent Quarterly Reports on Form 10-Q. DATASOURCE: Legg
Mason, Inc. CONTACT: Investors: F. Barry Bilson, +1-410-539-0000,
or Media: Mary Athridge, +1-212-805-6035, both of Legg Mason, Inc.;
or Ruth Pachman or Mark Semer of Kekst and Company,
+1-212-521-4800, for KKR Web site: http://www.leggmason.com/
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