Waddell & Reed sells Legend investment unit

Wed Oct 31, 2012 11:20am EDT

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(Reuters) - Asset manager Waddell & Reed Financial Inc (WDR.N) said it agreed to sell its Legend investment unit to broker dealer First Allied Holdings Inc to focus on its core asset management business.

The company took a non-cash charge of $42.4 million in the third quarter related to the write-down of Legend and said the sale should result in a modest pickup in margins.

"We did add somewhat to the margin. And that will be the case going forward as that's (Legend) a broker-dealer business that operates at a lower margin than our main investment business," Chief Executive Hank Herrmann said on a post-earnings conference call with analysts.

Waddell & Reed acquired the Legend Group, a mutual fund distribution and retirement planning company held privately earlier, for about $75 million in February 2000.

First Allied said Legend will continue to operate under its current brand as a stand-alone company, and the combined entity will have nearly 1,400 advisors and $28 billion in assets under administration.

MARGIN IMPROVES

The sale was announced as Waddell & Reed reported a net income from continuing operations, excluding Legend, of $52.1 million, or 61 cents per share, up from $39.4 million, or 46 cents per share, a year earlier.

Operating margin increased to 27.2 percent from 23.3 percent in the second quarter.

Net income, including the loss from Legend, fell to $8.5 million, or 10 cents per share, from $39.8 million, or 46 cents per share, a year earlier.

Total operating revenue rose 5 percent to $293.4 million.

Waddell & Reed, known for its Ivy fund family, ended the quarter with $95 billion in assets under management, up 6 percent from June 30.

Fellow money manager, Affiliated Managers Group Inc's (AMG.N) quarterly profit grew and beat analysts' estimates as it managed to maintain the inflow of new client money.

Net income grew to $54.9 million, or $1.04 per share, in the third quarter from $40.1 million, or 76 cents per share, a year earlier.

Shares of the Overland Park, Kansas-based Waddell & Reed, valued at about $2.8 billion, were down 1 percent at $32.28 on Wednesday on the New York Stock Exchange.

The stock gained about 14 percent in the last three months, while the S&P 500 Index .INX rose 4 percent in the same period.

(Reporting by Ashutosh Pandey and Aman Shah in Bangalore; Editing by Joyjeet Das)

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