The Baltimore Sun Jay Hancock column: Peltz could mean a bumpy ride for Legg Mason

Oct 28, 2009 (The Baltimore Sun - McClatchy-Tribune Information Services via COMTEX) -- LM | Quote | Chart | News | PowerRating -- Legg Mason chief Mark Fetting seemed thrilled Monday when he announced that billionaire investor Nelson Peltz would take a seat on the big money manager's board.

"We welcome Nelson, whose firm is a significant investor in Legg Mason," Fetting said in prepared propaganda. "We look forward to benefiting from his insights and experiences as we work together."

The Roman Senate must have sounded similarly enthusiastic when it let in the Visigoths in 410 A.D. At least the barbarians left after a few days.

Peltz looks like he's there for a while, pulling up a chair to deliver his unique brand of investment "activism" to one of Baltimore's most important companies.

The financial crisis and some bad bets had already cast a shadow on Legg's future, although its stock and mutual funds have recovered smartly since last winter.

The arrival of Peltz and his 4.3 percent ownership stake increases the uncertainty. Given what Legg has been through, it was hard to imagine that the pressure on Bill Miller and the firm's other money managers to perform could have been any greater. But it just intensified.

"His appearance is not good news for management," says Charles M. Elson, a business professor and corporate governance expert at the University of Delaware. "But it may be good news for the shareholders."

Investor activists aren't like the activists you see at International Monetary Fund meetings. They're a heck of a lot better dressed, and instead of waving signs on the sidewalk they're up in the corporate towers. World peace and social justice are not on the agenda.

T. Boone Pickens, Kirk Kerkorian and Carl Icahn are well-known white-collar agitators. The idea is to buy a big chunk of a troubled firm and then hassle the people in charge to get the stock price up -- sometimes through a sale or breakup of the company.

But often Peltz isn't even content with back-seat driving. He'll try to take the wheel and while he's at it tell you he doesn't like the fuzzy dice on the mirror.

After acquiring at 6 percent stake in Wendy's a few years ago, he pushed out the hamburger chain's chief executive and persuaded the company to split off its Tim Horton's doughnut chain and the Baja Fresh Mexican food operation.

Peltz, who operates through Trian Fund Management, bought a piece of Tiffany & Co. and started telling the jeweler how to conduct a trade it had been plying since 1837. When he turned his sights on Heinz, Peltz told the condiment maker that its little plastic ketchup pouches were all wrong.

"Let's experiment with 'peel and dip' ketchup containers at quick service restaurants," he exhorted the board, in a letter filed with regulators. "We believe the existing packets are a deterrent to potential consumers who often have a difficult time opening them."

In the 1980s Peltz owned the National Can Co., whose last Baltimore factory closed in late 1991.

Legg, which employs 850 people in Baltimore (out of 3,600 companywide) has barely had time to catch its breath after a horrendous two years. Its stock went from $100 to $12, although it has bounced back to $30 as the overall market recovered.

Bill Miller and other fund managers lost their mojo, and mutual-fund investors stampeded to the exits. Founder Raymond A. "Chip" Mason stepped down as chairman.

Just when the drama was subsiding -- Miller is comfortably beating most of his peers this year -- Peltz comes knocking. Nobody knows what he'll do.

He has pledged to respect Legg's "investment autonomy," Legg spokeswoman Mary Athridge said yesterday. Translation: He won't tell Bill Miller what stocks to buy.

Beyond that Peltz isn't saying much, which leaves room for plenty of speculation. Some think he might want to take Legg private -- take out a huge loan and buy all its public shares. How that will happen when Legg already carries $5 billion in debt on its books is a mystery.

Others believe he may want to split off one or more asset-management members of the Legg Mason federation that Chip Mason built up over the decades. Legg Mason's bond unit, Western Asset Management, might be the first to break away under this scenario.

Some think he might push to sell off the whole company. Still others suggest that Peltz may be content to wait and watch, hitching a ride on recovering financial markets.

"It sounds like Nelson is on board with their current game plan for getting the ship right," Morningstar analyst Greggory Warren told The Baltimore Sun on Monday.

Peltz wouldn't be sitting on the bench telling the coach what to do if he were OK with the game plan.

"It's very costly" for activist investors to get a seat on a board, said Robin Greenwood, assistant professor of business administration at Harvard. "You have to hire lawyers. It takes a huge amount of time."

You don't go to that much trouble to be a yes man. It may be that a Legg comeback will keep Peltz happy, at least for a while. But if it's not truly spectacular, he's going to have his own ideas.

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