Legg Mason Raises $1.25 Billion of Additional Capital Through Sale of Convertible Senior Notes to KKR



    
    Repurchases 2.5 Million Shares from Citigroup, Inc.

    Pre-announces Expected Earnings for Third Quarter of FY 2008
    

    BALTIMORE, Jan. 14 /CNW/ -- 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.




For further information:

For further information: 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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