By Ronda Fears
Nashville, Tenn., March 1 - Omnicom Group Inc. sold $750 million of 30-year zero-coupon, zero-accretion convertible notes with a 17.6% initial conversion premium intraday on Friday in the Rule 144A market, via sole book-running lead manager JPMorgan. Goldman Sachs & Co. was a co-manager.
Omnicom received par for the issue, but it was remarketed at a flexible reference price that was undisclosed, according to a source at one of the underwriters.
"They issued it at 103. I turned it down, because basically it's a warrant. The last I saw, it was at 102.5," said a convertible trader at a hedge fund in New Jersey. "It would be just wasting away every day you own it."
A source at another dealer desk knew of a $250 million block initially bought by an investor at 102.25.
JPMorgan declined to elaborate on the terms since the deal was a private offering.
Market sources said the deal priced with very aggressive terms, and many were unsure about the finer details of the issue but most thought it was struggling a bit. "It's not entirely clear what happened," said a convertible analyst at an investment bank not associated with the Omnicom deal. "It was't really trading. We don't think of it as a new deal in the sense of GM's new deal."
An analyst familiar with the deal said it was about 2.1% cheap to fair value at a price of par, assuming a credit spread of 200 basis points over Treasuries and 26% volatility in the stock.
"This is a swap opportunity. Anyone holding the existing Omnicom zeros will want to swap into this new one. The structure is identical, but you get hard call protection extended by the new one," the analyst said. Also, Omnicom said it would purchase up to 3 million of its common shares from initial buyers. Otherwise, the huge New York-based advertising agency said it would use proceeds to retire senior debt and other general purposes.
Omnicom's existing 0% convertible due 2031 (A3/A), which was issued at par in February 2001, was quoted Friday down 1 point on the day to 103 bid, 104 offered. Omnicom shares ended up 97c to $94.51.
The new issue has contingent conversion, contingent interest payments and contingent principal features. The contingent conversion trigger kicks in after year two at 125% and increases 5% quarterly to 220% at maturity. The contingent payment feature kicks in at year five with a 120% trigger. The contingent principal feature allows in year 20 if parity is between par and 220 the principal on each note will be reset to parity, up to 200.
Other terms of the new deal are:
Issuer: Omnicom Group Inc.
Amount: $750 million
Greenshoe: $150 million
Lead Manager: JPMorgan
Co-Manager: Goldman Sachs
Maturity Date: July 31, 2032
Coupon: 0%
Issue Price: par
Yield to maturity: 0%
Conversion Premium: 17.6%
Conversion Price: $110.01
Conversion Ratio: 9.09
Call: non-callable for five years, then at par
Put: on July 31, 2003, at par, and every July thereafter
Contingent Conversion: 125% hurdle, rising to 220% at maturity
Contingent Payment: 120% hurdle
Rating(s): Moody's: A3
| S&P: A
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| Settlement Date: | March 6
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