Franklin Resources Inc. and Legg Mason Inc. helped pioneer asset management in the 20th century. On Tuesday, the venerable but fading names said they will combine in an effort to compete, as low-cost index funds upend their industry.

In an era when traditional stock-pickers are under intensifying pressure, San Mateo, California-based Franklin agreed to buy Legg Mason to create a firm with a combined $1.5 trillion in assets.

The deal, valued at nearly $4.5 billion, shows how much the fund industry has transformed since the two companies were founded -- Franklin started in 1947 and Legg Mason’s precursor firm began in 1899. Customers are focusing more than ever on costs for money management, and a few large index fund managers dominate the field in managed assets globally.

Franklin’s shares were up 13% at 9:34 a.m. in New York, while Legg Mason’s stock rose 24%.

Merger activity in the asset management world has been increasing in recent years. Invesco Ltd. bought OppenheimerFunds from Massachusetts Mutual Life Insurance Co. in 2018, while both Janus Henderson Group Plc and Standard Life Aberdeen Plc were formed in mergers in 2017. In the brokerage sector, Charles Schwab Corp. agreed to buy TD Ameritrade Holding Corp. for about $26 billion in November.

Activist Pressure
The announcement comes less than a year after activist investor Trian Fund Management took a 4.5% stake in Legg Mason, enough to secure its founder Nelson Peltz a position on the board.

Just days later, the fund manager said it would cut about 12% of its staff and reduce its executive committee to four from eight members. Peltz said at the time his three top priorities were “significantly reducing costs, driving revenue growth organically and through acquisition, and increasing profitability.”

Tuesday’s announced transaction values Legg Mason at $50 per share, a 23% premium to the Baltimore-based company’s share price Friday. Franklin will assume about $2 billion in Legg Mason debt, according to the statement.

“This is a landmark acquisition for our organization that unlocks substantial value and growth opportunities driven by greater scale, diversity and balance across investment strategies, distribution channels and geographies,” Greg Johnson, executive chairman of the board of Franklin Resources, said in a statement.

The deal could help address areas where Franklin has gaps, Wells Fargo Securities analysts led by Christopher Harris said in a note. They mentioned fixed income and alternatives.

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