Omnicom’s No-No (A) Harvard Case Solution & Analysis

Omnicom's No-No (A) Case Solution

Omnicom's LYON was a "No No," a name that represents the fact the bond sold for par (NO accretion) even though it paid a 0% coupon (NO coupon) in most scenarios. The LYON contained a conversion feature whereby investors could convert their bonds into common equity under particular conditions to entice investors to buy this security. Additionally, the Omnicom LYON comprised a "co-pay" attribute that revealed the fact the interest rate payable to investors was contingent on Omnicom's stock price.

The copay attribute was a fundamental issue in the case, as it permitted the corporation to treat the bonds under the Contingent Payment Debt Instrument rules of the Internal Revenue Service. This essentially enabled the corporation to take substantial interest related tax deduction expenses despite of the fact that no cash coupons payments were made. The shield from taxation was only to last until the status of bonds remained outstanding. Nevertheless, the company was callable per annum.

PUBLICATION DATE: October 01, 2004 PRODUCT #: KEL076-PDF-ENG

This is just an excerpt. This case is about FINANCE & ACCOUNTING

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