Omnicoms No-No (A) Harvard Case Solution & Analysis

In February 2001, Omnicom, Inc. 's Chief Financial Officer Randall Weisenberger restructured Omnicom, replacing the plain vanilla convertible bonds with a liquid yield option note (Lyon). Omnicom Lyon was a "no-no", a name that reflects the fact that the bond sale For a nominal (NO accretion), although she paid 0% coupon (NO coupon) in most scenarios. To attract investors to buy this security LYON contained for conversion investors can convert their bonds into ordinary shares under certain circumstances. addition , Omnicom LYON, contained "additional payments", which reflects the fact that the interest rate paid to investors depended Omnicom's stock price. Surcharges feature was the central issue in the case, because it allows corporations to treat conditional payment bonds under the Internal Revenue Service rules debt instrument. It is actually possible to take a large corporation deduction of interest expense tax, even if no cash coupons are paid. Tax shield existed only as long as the bonds remain outstanding. Nevertheless, Omnicom LYON was computable, and the resulting year. If investors put bonds back to the company, the tax shield will be repaid. "Hide
by Todd Pulvino, James Litinsky Source: Kellogg School Management 15 pages. Publication date: 01 Oct 2004. Prod. #: KEL076-PDF-ENG

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