Investment management firm Franklin Resources Inc. (NYSE: BEN) announced Tuesday that it has agreed to acquire Legg Mason Inc. (NYSE: LM) in an all-cash transaction valued at $50 per Legg Mason share. Including $2 billion in Legg Mason debt, the total value of the deal is $6.5 billion. Franklin will use balance sheet cash to pay the cash portion of the transaction.

The transaction implies a premium of 22.8% to Legg Mason’s closing price on Friday. The premium is higher than the 17% premium that Charles Schwab Corp. (NYSE: SCHW) paid TD Ameritrade Holding Corp. (NASDAQ: AMTD), although that deal was much larger at $26 billion and all stock.

The combined company will have $1.5 trillion in assets under management when the deal is completed.

Greg Johnson, executive board chair of Franklin, commented:

Our complementary strengths will enhance our strategic positioning and long-term growth potential, while also delivering on our goal of creating a more balanced and diversified organization that is competitively positioned to serve more clients in more places.

CEO Joseph Sullivan of Legg Mason added:

By preserving the autonomy of each investment organization, the combination of Legg Mason and Franklin Templeton will quickly leverage our collective strengths, while minimizing the risk of disruption. Our clients will benefit from a shared vision, strong client-focused cultures, distinct investment capabilities and a broad distribution footprint in this powerful combination.

Activist investor Nelson Peltz, whose Trian Fund Management owns about 4.5% of outstanding Legg Mason stock may have been closer to the mark:

Given the dynamics of today’s rapidly evolving and increasingly competitive asset management sector, I believe this transaction is compelling. In our view, it offers an attractive valuation for Legg Mason’s shareholders. I believe it will also enable Legg Mason’s investment affiliates to remain at the forefront of an industry where scale is increasingly vital to success and to join Franklin Templeton, an organization that I have deep respect for and confidence in.

Peltz has agreed to vote Trian’s shares in favor of the transaction.

As more investors look to passive investing and no-fee trading, investment management firms like Franklin and Legg Mason are having a harder time maintaining their active management business. Combinations like this one bring scale and, theoretically at least, cost savings. In this case, that is $200 million over a period of two or three years. The transaction is expected to close in the third quarter of this year.

Legg Mason stock traded up about 23.6% at $50.32 a share in the late morning Tuesday, after posting a new 52-week high of $50.62 earlier. The 52-week low is $26.36.

Franklin Resources stock traded up about 4.7%, at $25.50 in a 52-week range of $23.96 to $35.82. The consensus price target was $24.85 before Tuesday morning’s announcement.

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