In February 2001, restructured Omnicom, Inc. ‘s CFO Randall Weisenberger Omnicom liabilities by replacing a plain vanilla bond with a liquid yield option note (Lyon). Omnicom LYON was a “no-no”, a name that the fact that the bond sells for par (NO accretion), although it reflects a 0% coupon (NO coupon) paid in most scenarios. To entice investors to purchase these security LYON contained a conversion function, investors could convert their bonds into equity together with cert … Read more »

In February 2001, restructured Omnicom, Inc. ‘s CFO Randall Weisenberger Omnicom liabilities by replacing a plain vanilla bond with a liquid yield option note (Lyon). Omnicom LYON was a “no-no”, a name that the fact that the bond sells for par (NO accretion), although it reflects a 0% coupon (NO coupon) paid in most scenarios. To entice investors to purchase these security LYON contained a conversion function, investors could convert their bonds into equity share under certain circumstances. In addition, the Omnicom LYON contained a “co-pay” feature, the fact that the interest rate payable to investors depending Omnicom’s stock had happened. The co-pay feature was a central issue in the case, as the company, the bonds may be treated under the Internal Revenue Service contingent payment debt instrument rules. This allows the company to effectively take great interest expense tax deductions, although no cash coupons were paid. The tax shield exists only as long as the bonds are outstanding. However, Omnicom was the undisputed LYON and callable annually. In the event that the investor the bonds back, about the company, the tax would sign off.
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from
Todd Pulvino,
James Litinsky
Source: Kellogg School of Management
15 pages.
Release Date: 1 October 2004. Prod #: KEL076-PDF-ENG
Omnicom, the No-No (A) HBR case solution

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