Franklin Resources, Inc. (BEN) Earnings Call Transcript & Summary

Good morning, and welcome to Franklin Resources' Conference Call to discuss the acquisition announcement of Legg Mason & Co., Inc. Statements made in this conference call regarding Franklin Resources, Inc. and Legg Mason & Co., Inc., which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements speak only as of today's date and involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties and other important factors are described in more detail in Franklin's press release distributed this morning at 7:30 a.m. Eastern and in Franklin's and Legg Mason's recent filings with the Securities and Exchange Commission, including in each company's most recent Form 10-K and 10-Q filings. I'd now like to introduce the President and CEO of Franklin Templeton, Jenny Johnson. Ms. Johnson, you may begin.

Thanks, everyone, for joining us on short notice this morning. I am joined by Matthew Nicholls, our CFO; and Greg Johnson, our Executive Chairman; as well as Joe Sullivan, Chairman and CEO of Legg Mason. As you can imagine, we are very excited about today's announcement and what it means for our respective companies and of course, for thousands of employees, clients and shareholders. For me, personally, I'm certainly starting off my tenure as CEO with some big news. No, but in all seriousness, Greg, Matthew, the team here and I, along with our counterparts at Legg Mason and affiliates, have been working on this for several months, and it is part of a multiyear strategic plan where we identified key growth accelerators for our business, and we're very pleased to be able to announce this combination today. Now before we get into the details of the transaction, I also want to highlight that our 2 organizations are incredibly aligned in terms of culture and our shared focus on delivering strong investment results for our valued clients. Also, Franklin Templeton has a history of successful large asset management acquisitions, and we understand the complexity involved in a successful execution. So with that in mind, I want to highlight Greg's role as Executive Chairman. He will play an integral part of the execution by assisting with affiliate relationships as well as introducing Franklin Templeton to their institutional clients, which will be very helpful in ensuring a successful integration. So now, Matthew and I would like to take you through the specifics of the transaction. So beginning on Slide 3. Why are we doing this transaction? So one of the reasons we are so excited about this transaction is that it brings together 2 especially complementary platforms in a way that will create a more balanced organization. One of the benefits, and there are many that we will discuss, of combining our organizations is that it will allow us collectively to fully utilize the strengths of our 2 leading active management franchises and global distribution capabilities to serve more clients in more places and drive growth. This acquisition achieves multiple strategic objectives in a single transaction. It is the equivalent of acquiring several companies, plus a global holding company, with each component bringing a unique set of attractive and strategically important capabilities to Franklin Templeton. We have previously discussed the need for greater scale in fixed income, more alternative assets, particularly in real estate, a leading SMA platform and to diversify our distribution across institutional and retail channels. We have also described our desire to find ways to better utilize our resources, in particular, distribution and various international operations. Amongst other things, with this transaction, Western Asset and Brandywine Global at over $500 billion of fixed income could make us a true fixed income leader across all strategies, with ClearBridge, Royce and Martin Currie at over $200 billion in specialized equity strategies. We become the #1 SMA model manager, making us the third largest overall in separately managed accounts with the addition of over $90 billion. With Clarion, we add a leading real estate manager, resulting in over $100 billion of alternative AUM. We dramatically increased our institutional base in the U.S., creating a roughly 50-50 retail institutional mix. And in both cases, we now have highly complementary distribution relationships. We build a greater presence in key international markets such as the U.K., Japan and Australia. While we do expect to realize some notable cost savings in this transaction, our primary focus is positioning ourselves to grow for many years to come, providing stability for clients and employees and preserving our financial strength and ability to invest in our business. Moving to Slide 4. Given all these strategic benefits and the new capabilities we are adding, we believe this combination is really quite differentiated, one that leaves the resulting company, not just far larger with $1.5 trillion under management, but also far stronger. As I illustrated on the prior page, we will be a true leader in multiple investment categories. And I want to note that Franklin Templeton has a history of acquiring high quality, independent asset managers retaining strong distinct investment organizations and utilizing resources across the platform in ways that preserve autonomy and independence where it makes sense. This transaction is consistent with that history. We will have a wide range of strong performing strategies. As a whole, Legg Mason recently reported 83% of their AUM was beating its benchmark over the last 5 years. If we look at their U.S. taxable tax-exempt fixed income and alternative AUM, those numbers are closer to 100%. We will also be highly diversified by distribution, client, asset class and geography, essentially becoming an all-weather global asset management firm. This will position us well to unlock the real potential of our combined distribution resources. All of this will be underpinned by a strong balance sheet, where we will have still $5 billion of cash and investments, even though this is an all-cash transaction with modest leverage. It is a transaction designed for longer-term growth and utilization of our significant combined resources with a strong balance sheet and cash flow to provide substantial capacity to invest across the business. I will now hand it off to Matthew to provide an overview of the transaction.

Thank you, Jenny. As outlined on Slide 5, Franklin Resources will acquire 100% of Legg Mason at $50 per share or $4.5 billion in an all cash transaction. Legg Mason affiliates will remain in place, with no change to affiliate leadership, strategies or brands. Rationalization will be focused on the holding company operating functions and the holding company distribution groups. Some of these resources will be reallocated to specialist roles at affiliates and investment teams, but we will also be focused on minimizing any disruption to our clients and employees. Our focus on talent retention is underpinned by effective, long-term retention mechanisms in place across the organization, including approximately $350 million of new equity-based retention and performance awards. EnTrust will be reacquired by the EnTrust management team, reflecting our mutual conclusions regarding their optimal ownership structure. We have had excellent discussions with EnTrust about the future, and hope to find new ways of continuing to work together. The cash consideration for the transaction will be funded from existing balance sheet cash. We will assume approximately $2 billion of Legg Mason outstanding debt, resulting in modest pro forma gross leverage of about 1x debt-to-EBITDA. We will not take on any further debt as part of this transaction, and expect to be able to reduce the cost of this capital over time. We will have in excess of $5 billion of cash and investments post-close, including more than $2 billion of cash. The transaction results in highly attractive returns, with upper 20s GAAP EPS accretion in fiscal 2021, excluding onetime integration charges, nonrecurring and acquisition-related expenses. On a pro forma basis, the last 12 months EBITDA margin, including synergies, is approximately 28%. Our combined cash flow generation and earnings power, together with our strong balance sheet, will support our dividend and provide plenty of capacity to continue growing, as we have done annually since 1981. While we expect to continue to repurchase shares to offset dilution from share-based compensation and expect to continue to repurchase shares opportunistically from time to time, we will likely spend more of our post dividend free cash flow investing in our business, including seed capital and acquiring resources to help grow our investment teams, affiliates and operations. We expect to realize approximately $200 million of run rate cost savings, net of significant growth investments in the combined organization, with the majority of those savings expected to be achieved within a year. These near-term efficiencies are focused on holding company activities, including integrating certain aspects of holding company distribution. None of the cost efficiencies from this transaction involves our investment teams or affiliates. We expect to close the transaction in the third calendar quarter. Back to you, Jenny.

Turning to Slide 6. As I mentioned at the outset, this is a highly strategic and growth-oriented transaction, and much of that comes from the fact that the 2 firms are so complementary. As we have highlighted on recent quarterly calls, we have spent significant time analyzing our options and determined that Legg Mason was clearly best fit for our strategic objectives. And we have spent the past several months working with Legg Mason and its affiliates, making sure that this unique combination will achieve its strategic potential. Our confidence is bolstered by a shared view on the future of the industry; the necessity to be scaled, yet specialized; the advantage of being global; the importance of preserving the capacity to invest in technology and data; and the changing dynamics in the asset and the wealth ecosystem. Both Franklin Templeton and Legg Mason have a long history of acquiring companies and allowing them to retain autonomy and investment independence while enjoying a strong culture of collaboration, all focused on serving our clients. Our global distribution capabilities and relationships are complementary with modest overlap. In the U.S., it transforms our institutional business to equal the size of our retail franchise. Even our U.S. retail intermediate relationships are complementary, and we look forward to providing our clients with a broader range of high-quality investment choices. So Slide 7 illustrates the breadth and depth of our specialization, while also achieving scale where needed. We believe distinct investment organizations known for strong performance across certain investment styles creates important client retention. Yet our ability to present a coordinated approach when needed will also provide an advantage. In addition, our new investment capabilities will support our growing multi-asset solutions business. In that category, I'd also note that our wealth management business, through Fiduciary Trust, will remain a priority, and as previously communicated, we will likely double this business in the next 12 to 24 months. I'd also note that given how Franklin Templeton and Legg Mason have shared a similar focus on innovation, we will redouble our efforts to position for the future in terms of financial technology, data and platform investments on a global scale. Slide 8 simply illustrates our combined AUM. But as previously mentioned, the size itself was not a criterion for our transaction. It happens that the specialized investment capabilities that we were looking for were in one place, and together, creates a global scale that will produce growth and cost efficiencies for our company. Moving to Slide 9. This shows our global reach and on-the-ground access in many markets, which is going to become increasingly important. Franklin Templeton has invested globally for decades and we are located in 35 countries. It is quite difficult and very expensive to create this footprint. Franklin Templeton is in 11 countries where Legg Mason has no presence, providing a number of exciting potential growth opportunities. In certain important markets, such as U.K., Japan and Australia, we will gain more scale and efficiencies. Our ability to compete on a global level is certainly enhanced by this transaction. Slide 10 demonstrates the earlier point of our complementary distribution business. On the retail side, this is not about just being bigger. The complementary nature of our respective retail footprint provides opportunities for growth. For example, Legg Mason has historically had lower penetration with the distribution partner responsible for the largest portion of our AUM. We're confident that our close partnership there can help increase the attention on some of the very strong performing strategies across the Legg Mason affiliates. On the flip side, you can see that we have less presence today with a firm that is the third largest source of Legg Mason's retail assets, another great opportunity for the combined company. On the investment vehicle side, while we both have strong traditional mutual fund businesses, the combination positions us very well across a range of other vehicles, which have been seeing strong client interest. As previously noted, Legg Mason is the third largest manager of separately managed accounts, and actually the #1 on model delivery, whereas our presence in these programs has been very modest. In ETFs, we are both relatively smaller players today, but have been making significant strides as one of the fastest-growing platforms in the industry, with an attractive array of products and innovative solutions for clients. I will pass it back to Matthew to walk through the summary of our pro forma company.

Thanks, Jenny. Slide 11 highlights 3 important points. First, we are achieving substantially increased diversification by investment objective, by adding, amongst other things, scale fixed income to complement our current large muni and global macro strategies, a significant real estate franchise to add to our Benefit Street Partners and alternative asset strategies, and a number of additional equity strategies to complement our Franklin mutual series and Templeton equity groups. Second, this transaction is significantly diversifying our firm by distribution channel, in particular, the addition of a substantial institutional business. We go from being 25% institutional to 51% institutional, with a good portion of this being harder to commoditize. Legg Mason is also better positioned in the fee-based channels to complement Franklin Templeton's leadership position in the broker channels. And third, we expand our global reach by more than doubling our assets under management overseas. Moving on to Slide 12. As mentioned at the start by Jenny, this transaction is characterized by long-term growth opportunities and investment capacity for the future. However, there are 2 areas that we will tackle in terms of cost savings. And we expect to achieve approximately $200 million, with the majority in the first year. Firstly, we only need 1 holding company operation, so we will be streamlining holding company operations as soon as practical. Second, there will be some efficiencies at the holding company distribution level, although we will be careful to minimize any disruption. Any change will be to enhance client experience and content delivery to our clients and intermediaries. A significant portion of any savings will be reinvested back into the company, and we will reallocate resources to our investment teams and affiliates. All of these savings are in addition to the previously announced savings at both Legg Mason and Franklin Templeton. These are the only synergies we have explicitly factored into our analysis of the financial impact of the transaction, but we think they are only part of the long-term synergy opportunity. Over time, there will be future opportunities for scale efficiency and multiple opportunities for additional growth investments in technology, new products and other strategic M&A. As mentioned earlier, the financial impact from this transaction is attractive, while we also retain our financial strength and flexibility. Slide 13 is a brief summary of the pro forma financial metrics. On a combined basis, we will have over $1.5 trillion in assets under management. Over the last 12 months, we've generated a combined $8.5 billion in revenue, which would have produced a combined $2.4 billion in EBITDA, including our expected net cost savings for a pro forma margin of 28%. Post $4.5 billion of cash consideration, our cash and investments will be approximately $5.3 billion. As mentioned previously, our pro forma gross debt-to-EBITDA will be approximately 1x, and our net debt-to-EBITDA will be close to 0. As also highlighted earlier, this transaction will generate upper 20s GAAP EPS accretion in fiscal 2021, based on Street consensus earnings for each company, excluding onetime charges, nonrecurring and acquisition-related expenses. Now I'm happy to pass the call over to our Executive Chairman, Greg Johnson.

Thank you, Matthew. To summarize what we believe are the 3 key things to remember about this transaction. It's focused on, one, stability. We have very deliberately approached all aspects of this transaction with a commitment to providing continuity and stability for clients and investment teams. We have established strong alignment around our common goals, and our business is now incredibly balanced and diversified, truly an all-weather business model. Secondly, long-term perspective. For us, this transaction is about what it can do for us over many years, not just over the next several quarters. We're focused on capitalizing on the significant new growth opportunities it affords. And finally, strength and flexibility. We've always viewed our strong balance sheet as a strategic advantage. This transaction, with all the benefits it brings, is just the sort of opportunity we're uniquely positioned to pursue because of that strength. Yet, it's important to note, after the transaction, we will continue to have rock-solid financial strength. We still have significant cash, substantial free cash flow and modest leverage. As a result, we retain the flexibility to continue to be able to invest opportunistically. While we're all incredibly excited about this transaction and see it as an important strategic step forward for our firm, we don't view this as the last step. We can and will continue pursuing initiatives that help us meet the evolving needs of our global clients and position us for growth for years to come. I'll now turn it back over to Jenny.

Thanks, Greg. Before turning this over to questions, I also want to invite Joe Sullivan to provide some of his perspectives on the combination. I want to thank him and his colleagues at Legg Mason and the leaders of all the great investment organizations of Legg Mason, for all their positive engagement with us over the last few months. So go ahead, Joe.

Thank you, Jenny, and good morning, everyone. First, I'd like to echo your excitement for today's announcement as we, too, believe that this combination is a tremendous fit and is powerful, in that it addresses the evolving needs of investors around the world. I thought I'd briefly answer 2 important questions that you may have on your mind. Why would we choose to partner with Franklin Templeton? And why now? Why Franklin is pretty straightforward. We are combining with a company that shares our vision of the future for the industry, has a client-driven culture that feels quite a bit like our own and is highly complementary in terms of investment and vehicle capabilities and global access for clients. Franklin has strong and positive leadership, enjoys a long and successful track record of adding key businesses in a way that preserves the autonomy and independence of existing investment organizations, which, as you know, is fundamental to our affiliates and how we think about like -- how we think at like Legg Mason. It is the kind of firm with which we want to and will be successful partners. I also know that Jenny and Greg share with me a deep belief in the future of active asset management, and I believe that this transformational combination is consistent with and, in fact, is an extension of -- a significant extension of our Legg Mason strategy of expanding client choice and in so, delivering -- in so doing, delivering more and better for our clients. So this combination is entirely consistent with how we think about the business. The combined organization will be strongly positioned for growth in this rapidly evolving industry, with an incredible breadth of specialized investment capabilities that are managed by a large group of world-class investment managers and distributed through expansive global distribution capability to provide an exceptionable, arguably unparalleled client access. The company, on a combined basis, enjoys a powerful and efficient global operating infrastructure to run the business and has the financial strength to make the continued necessary investments in technology, product innovation, brand and a distinctive client experience. We believe the attributes, to which I just referred, define the winning firms of the future. These attributes are necessary to provide a differentiated and better experience for clients, and these are the attributes that define the Franklin Templeton following this combination. We believe that in this rapidly changing industry, our best opportunity to reach our full potential is to join with a great partner with whom we combine our individual attributes to become stronger and more competitive than we could achieve alone. And when the opportunity to create a much stronger company with Franklin Templeton presented itself, we didn't miss it. And that's why we chose to combine with Franklin Templeton now. And as you can imagine, and notwithstanding the strategic logic, this was a very difficult decision to make. But believing this transaction to be very good for our clients as well as providing meaningful value for our shareholders, for all these and the reasons I've previously mentioned, we are convinced that it is the right decision. And now we intend to work as part of Franklin Templeton to deliver the best-in-class results that the potential of this world-class platform creates and we expect. And finally, Jenny, before I hand it back to you, I'd like to just take a moment to express my deepest appreciation for our Legg Mason and affiliate employees. I'm just incredibly proud of what we have accomplished over the past several years, and the diversified and resilient business that we have built together. We look forward to the next chapter, continuing our commitment to clients on this new journey for Legg Mason as we join Franklin Templeton to be better together. And with that, Jenny, I'll turn it back to you.

Ladies and gentlemen, good morning. My name is Jessie, and I will be your call operator today. [Operator Instructions] And as a reminder, this conference is being recorded. Our first question comes from the line of Robert Lee with KBW.

congratulations, everyone, on the transaction. I guess, maybe I'd just like to start with a kind of -- maybe this is more for Joe actually or Matt. But I mean, Legg -- as part of the deal, will Legg start to get some pretty substantial tax benefits, the NOLs and whatnot? Does any of that transfer over to them as part of the deal? And then, I guess, are you -- pro forma, once the deal closes, Matt, are you thinking that you may adopt the earnings metrics more similar to what Legg Mason does?

Yes. So thanks, Rob. So over time, we expect to realize about $500 million in tax benefit from this transaction, which is essentially a carryover from Legg Mason. That includes the NOLs, the foreign tax credit carryover and goodwill intangible amortization. So it's all 3 of those things. That's the point as to question 1. Question 2 is we're in the process of deciding how we're going to report, whether we're going to do non-GAAP or not. We have not made that decision yet, but we're considering it over the next several weeks.

And maybe just one real quick follow-up, and then I'll get back in the queue. Can you talk about any expected deal breakage that may come from the transaction, whether you think there may be some product rationalization? I know you can't necessarily go into the affiliates and do that, that's tough, but how you're thinking about any deal breakage?

Yes, I mean, because of the affiliate structures of Legg Mason, we think that client breakage could be quite modest. But of course, we have modeled some minimal client leakage, but we're not talking in terms of percentages externally on that point.

And just to add, we are keeping the independence of the investment affiliates. And so having a history of acquiring companies and maintaining completely independent investment teams has been consistent with our approach. So to be able to say to clients, that stays the same, we think that we'll have less breakage than probably other deals. And our focus is really on the integration of the parent companies and distribution.

And also they have -- sorry. Sorry.

I would just add that just on the plan, the question around fund mergers and consolidation that really is -- we haven't really considered any of that at this point. That's not the initial focus. I mean, that could happen over time where it makes sense, but client retention and stability are really what we're focused on early.

Yes. And of course, there is some overlap, but it's really quite minimal for a transaction of this size. So that's another reason why we're feeling good about attrition rates being low.

Our next question comes from Ken Worthington with JPMorgan.

I think you guys made the case that the combination will accelerate -- or I should say, how do you think the combination will accelerate the growth of the combined company? You made the case for complementary. You gave us a couple of examples on U.S. distribution. Can you give us more specifics on the cross-selling and cross-marketing opportunities you see for the 2 firms, both in and outside the U.S.? So maybe what products have the greatest potential? What countries have the greatest potential? And are there any new opportunities that maybe neither company was able to tap independently that they now can go after as a combined firm?

So again, this is a -- this transaction is playing offense, right? So it's the all-weather product lineup for us. It's adding those capabilities of core and core plus as well as the real estate. We've had a real desire to grow those. Clarion has done very well in the institutional space. But you've seen a lot of opportunity in the retail space with some of their competitors. So we think that, that's an opportunity. With the distribution platform there -- the SMA business, obviously, a big area of growth on the U.S. retail side, and we think there's opportunities for us to take some of our products. And we've been trying to build that out and leverage both the technology platform as well as the client base on the SMA side. Countries, you take Japan, Australia and U.K., some of the biggest markets outside the U.S. Take Australia alone, we go -- I think we're in the 40th something, and they're in the 20th as far as ranking. And combined, we're the 12th largest manager. And so you just know that there's opportunities with scale in that type of market. Same thing with Japan, we become much bigger. So it's -- it will take some time, but the ability, one, to have flexibility to move some of the distribution around and building that platform. But two, just having the all-weather platform to be able to -- when the market's acting in a certain way to always have something to sell, I think, is incredibly important.

And I'll just add one more example. Take a firm like Edward Jones, that we have a strong relationship with throughout the country. And Legg, which is relatively new to that system, where we can take some of that performance, and over time, really leverage that up quickly where you have such strong taxable fixed performance. And those are areas where I think you could accelerate pretty quick growth in the year ahead.

Our next question comes from Mike Carrier with Bank of America.

You guys mentioned when you do a transaction like this, you do get a lot of different, like asset managers and you check a lot of the strategic areas that you guys wanted to grow. I guess, the flip is with the multi-boutiques, it tends to be tougher in terms of negotiations and cultures. EnTrust looks like they decided to go in a different direction. You had Western and ClearBridge in the release. Just more curious, like, were any of the other affiliate contracts renegotiated? How were the buy-in from the other affiliates? And how were the payouts structured in terms of that $350 million over time?

So I would answer that. I guess, there's a number of questions in there. First of all, we had very active engagement from all of the affiliates. And the reason why we didn't have more quotes in the press release, because otherwise we'd have a very long press release, 9 quotes. So we picked a couple of large ones, just to make it practical for the release. So that's point one, very active engagement, high enthusiasm and an alignment of interests. Two, as you mentioned, the equity that we've announced as part of this transaction, that is over a very extended period of time. It's between 4 and 7 years out when that vests. It is part and parcel of really truly aligning interest between the various parties in this transaction. Frankly, not just the transaction, but the company, which has always lacked a little bit in -- I'm sure our friends in Baltimore wouldn't mind me saying this, it's sort of lacked a bit in the past. So we've got that going. And a hallmark of this transaction is to create the most stable environment possible without questions about how the company is going to be run in the future. So our focus has been, what does that entail? That entails the retaining sensible arrangements between the affiliates and the parent, just like we have sensible arrangements with our investment teams today. And the parent company then, by definition, creates an environment where we retain our key employees. And when you retain our key employees, we retain our key clients and all of our clients, we hope. So that's really the -- it's a balance between you -- I think your question was getting at revenue share. It's a balance of retaining the revenue shares where it makes sense, adjusting some of them where it makes sense in the future, and that it's different for every single company and is being structured in a very deliberate way where we protect our margin. We protect our people, and we make sure that all the key folks in the affiliates know that this is all about talent, employees and our clients.

And I'll just add. As Matthew mentioned, this -- the discussion was not only with Legg Mason, but was with all the affiliates. And the affiliates, I think, understood as the industry is evolving, that having a strong balance sheet is a real advantage with the parent company. And so our ability to invest seed capital is important. The work we're doing on the data science side, data is expensive, and so being able to leverage that. The strong solutions group and the OCIO to be able to have a channel in multi-asset solutions, where your products can be part of that is important. And so I think that really resonated with the various affiliates. And I'll just say on the EnTrust piece, part of where EnTrust business has evolved is away from just the traditional fund of funds, it also has a piece of private credit in it and some direct private equity investments with co-investments. And so we have all those things across various different entities, and it would be difficult to bring that all together under one without sort of dividing it up or competing. And so as management there was looking for independence, it just made sense for both of us to do that. We agreed with them.

Yes, and we've had very, very good discussions with EnTrust and EnTrust management and owners, Gregg Hymowitz and his team, about the future. And we're going to have good connectivity in the future and continue to work with each other.

Makes sense. And Matt, just one clarification. Just on the tax benefit, I think you said $500 million. Do you have a time frame? Because just trying to figure out if like, I'm assuming that's over time. And the accretion is -- I know you guys gave fiscal year '21. But obviously, that tends to be a multiyear benefit. So just any context around that?

Yes, I'd say probably 7 to 10 years for the tax benefit. It's hard, but it's sort of fine-tuning some of those things, Mike, as we move forward here. And obviously, we'll spend more time with you going through the different metrics to get your models right, but that's how I would look at that.

Our next question comes from Dan Fannon with Jefferies.

So just want to follow up on the revenue share. Historically, that's been a burden to margin expansion for Legg Mason and other the kind of multi-affiliate model. So have all those negotiations or changes that may occur already happened? Or is that sort of something as you get further into the closing of the transaction that you'll potentially adjust those going forward?

Yes. I mean, we're not going to disclose details of revenue shares and what we've done with each of the individual affiliates. All I can say, again, is to repeat that it's been a very productive discussion. It's all about stability and continuity. We do have certain rights to adjust revenue shares in the future, but we have no intention of doing that right now. And there's just no need to. I mean, we have a structure in place where when the affiliates grow, we grow and our margin grows. I think that's probably the best way to describe it.

And there's a lot on the plate to integrate the parent company and the global distribution platform. So in many ways, it increases the likelihood of success to be able to have those independent affiliates, while we're focused on the integration of the other things.

Yes. I mean, the big difference here is that we have both a combination of revenue share and equity alignment with the parent and many more resources that we can add to both the affiliates, as we do to our investment -- our current investment teams at Franklin Templeton to support growth. And being financially strong and having that capacity is very, very important to the affiliates. And that represented a very significant portion of our dialogue with them before we even got to things like revenue share and these sorts of things.

Understood. And then just as a follow-up, you obviously, are going to have a lot of brands post this in the market. In terms of optimizing big categories like fixed income, where you have a large presence globally with Franklin legacy, and now you've got Western and Brandywine, is it something, from a distribution effort, you're going to still maintain all of this independence with that? And not expect that to be confusing over time to your distribution partners and/or potential clients?

Yes, at this point, we're intending to keep the independence of all the brands, particularly because you have these affiliate relationships. But also because the message is, to the market, these are really independent investment teams, and that what you get at Franklin Templeton is the independence of investment teams with the strength and stability of a massive global platform.

And I would add that even if you look at it and say, well, you've got a lot more global macro, as Jenny said, I mean, they actually are distinct styles with different Morningstar boxes. And then if you look at the overall entity, our exposure goes from something like 14%, 15% down to under 10% or just under 10%. So it's actually less of the assets. But I think those are the kind of decisions with distribution that we're going to be thoughtful and take our time.

Yes. These are very different companies, very -- just like our investment teams at Franklin Templeton are very, very different and offer different investment specialization, as I think we call it. We're going to scale sort of platform and arena. And I think that's one of the hallmarks of this transaction. I think the other point that we should mention here is the reinvestment that I mentioned in my earlier remarks. The savings, the expense savings related to the 2 aspects that I mentioned, are way in excess of $200 million. But the reason why I say $200 million, is that's a net number. And the difference between the net number and the gross number is we're reinvesting in aspects of distribution that we want to grow, including increasing specialized distribution resources for our investment teams and the affiliates.

Our next question comes from Bill Katz with Citi.

So may be one for Joe. Joe, I appreciate your commentary on sort of the rationale behind the deal. Can you talk about what else you may have been considering to unlock value? Because when I step back and look at Franklin, while sort of I appreciate on paper how good it looks, the reality is the outflows have been rather high. So what specifically, within the Franklin platform, do you see leveraging the platform that, a, you couldn't do on your own? Or b, maybe finding a different partner?

Sure. So I think there's a couple of things. And the question I think that Ken asked earlier about what are the specific growth opportunities? I think, Jenny in her remarks mentioned that Franklin is in 11 countries outside the U.S. that we don't -- we're not in. And they have a meaningful presence in those countries and high-growth countries, a number of the emerging markets and high-growth countries. For us to establish and get access into those countries would take a lot of time and would be expensive. I think Jenny mentioned, it's just an expensive proposition to build those kind of franchises. So we get access to that. I think the addition of different investment capabilities will help our solutions business, our combined solutions business. We agree with Franklin that solutions, multi-asset class solutions, are going to be increasingly important when it comes to the future and having greater access to more strategies and more capabilities, differentiated capabilities will help. I think the -- let's face it, the strength -- the financial strength of Franklin, going to allow us to do a lot more seed capital, allow our affiliates to have more access to seed capital in a meaningful way. What we're seeing and what we've been seeing over the last few years is those seed capital requirements are larger. They're $25 million or $50 million at a clip instead of $5 million. And so having a better balance sheet or a stronger balance sheet, a bigger, stronger financial company to do that, to invest in things. We've both been investing in things like Embark. We invested in Embark recently, so did with Franklin. But we've been in Quantifeed. They've been in other fintech and digital distribution capabilities. And so to have more resources to be able to do that, to have more resources to be able to invest like we did with Clarion and Gramercy Partners, for our remaining affiliates to strengthen their investment capabilities and offerings by utilizing the financial resources of Franklin. So this ticked a lot of the boxes. I kind of said attributes of what we consider to be winning firms of the future. And we think that this combination of what we bring together really reinforces that, in a way that we just couldn't do on our own.

I'm just going to add 2 things, Bill. One, on top of that, just as Slide 10 mentioned. I mean, it is hard with some of these large distributors, if you're not in there in the platform to get their attention. They've got plenty of products. And so the ability to have -- for one of us to have a relationship and bring the other products is significant. And then I would just point out that our February flows are looking better. And so the combination is adding these things, we should see improvement.

Great. That's helpful. Just a follow-up for that, just maybe a number of small questions within your guidance. Given the size of the integration charge, relative to the savings, can we assume that the gross savings might look more like the integration charges of 350? And then any sort of sense of timing, you said the majority in year 1, but any more specificity around that $200 million breakdown?

The answer is yes to your first question. The second one, I would say, 12 to 18 months for the whole lot.

Our next question comes from Chris Harris with Wells Fargo.

Matthew, can you walk through the upper 20s accretion math for us. I mean, I get, combining the 2 organizations. But I think there's quite a few other moving parts, specifically related to the maybe deal-related outflows, departure of EnTrust, synergies and tax benefits and so on?