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Exclusive: Legg Mason to name interim CEO Sullivan as next leader

By Ross Kerber

(Reuters) - Asset manager Legg Mason Inc is preparing to name its interim head, Joseph Sullivan, as its permanent chief executive, two people familiar with the matter said, as the company turns to a sales chief to stop an outflow of funds.

Sullivan, 55, became interim CEO of the Baltimore fund firm when Mark Fetting stepped down under pressure last September. Sullivan was seen by insiders as the leading contender for the post.

The company's choice of an insider rather than an outsider will signal to investors that Legg Mason is less inclined to fix itself through radical reinvention, analysts have said.

Picking Sullivan "is very consistent with a strategy of trying to keep going on the same course," said University of Maryland finance professor Russ Wermers in a telephone interview on Tuesday.

Legg Mason might do "limited spinoffs or selling some assets, but they will pretty much stay the course and not let the last three to four years define them," Wermers said.

With $654 billion under management at January 31, Legg Mason is one of the largest publicly traded U.S. asset managers, but some of its largest funds have turned in mixed performances and the company's shares have lagged its peers.

Customers have been pulling money out for almost five years and one-time star manager Bill Miller stepped down from his largest fund last year.

The company has also been hampered by its structure -- it has eight semi-autonomous investment units that have not always worked closely with the parent. Some affiliate executives have even discussed a buyout with private equity firms.

Sullivan told investors on a February 1 conference call that Legg Mason remains committed to its affiliate model, but he also said it could alter arrangements with big units like its Western Asset Management bond division or its Royce & Associates unit that invests in smaller companies.

Legg Mason is likely to announce its CEO decision as soon as Wednesday. The company is also likely to soon name a new board member with a background in the asset-management industry, said the sources, who were not authorized to speak on the record.

Legg Mason spokeswoman Mary Athridge declined to comment on Tuesday, and said Sullivan and board chair W. Allen Reed were not available to comment.

Another board member, activist investor Nelson Peltz, who owns about 10 percent of the company, has declined to comment on Legg Mason to date and could not be immediately reached on Tuesday evening.

Sullivan, previously sales chief at the company, took over as CEO on an interim basis at the start of October and has been trying to resolve tensions partly though an acquisitions strategy.

On his watch Legg Mason agreed to buy London-based hedge fund firm Fauchier Partners for $80 million, plus up to $56 million in future incentive payments.

Along with the deal, Legg Mason also renegotiated financial arrangements with its Permal fund-of-funds unit. Sullivan said on the February 1 conference call the new agreements could serve as a model for future deals with other affiliates.

Legg Mason's search is being overseen by recruiting firm Korn/Ferry International.

(Reporting By Ross Kerber; Editing by Bob Burgdorfer and Richard Pullin)

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