Shares Rally After Omnicom Refutes Moody's Liquidity Concern

01 July 2002

Omnicom Group, the globe’s third largest advertising holding company, watched its shares yo-yo Thursday and Friday after financial analyst/risk assessor Moody’s issued an ambiguous but damaging statement as to the ad group's credit status.

“Moody's is concerned that revenue pressures caused by the cyclical slowdown has resulted in a mixed if not less than robust general advertising climate,” pontificated the statement, “and that [Omnicom] is not compensating for the weakness sufficient to maintain credit strength and financial flexibility.”

More significantly, Moody’s added that it was reviewing Omnicom’s senior unsecured debt – currently rated A3 – although not its short-term debt.

Following the statement on Wednesday, Omnicom shares on the New York Stock exchange went into freefall, sinking on Thursday to a five-year low at $36.50 (€36.84; £23.82) before the group responded with a detailed statement of its own. Its shares then rallied robustly, ending the day at $44.30. The upward trend continued Friday with Omnicom stock gaining a further 3.9% to $45.80 by the close of trading.

However, the group’s stock price still stands at less than half its value on March 4 this year when shares peaked at $97.35.

The Omnicom statement in full reads:

“Omnicom [has] ample liquidity to meet all foreseeable business and capital requirements, including the company's possible refunding of the $850 million aggregate principal amount of convertible notes in February 2003.

“Among other facilities, the company has a one-year $1.5 billion commercial paper program backed by a $1.6 billion credit facility that can be extended to April 2004 at the company's option. In addition, Omnicom also has an undrawn $500 million revolving credit line committed through June 30, 2003.

“Availability under these facilities would not be affected by a rating change.

“The existing Omnicom debt under review is about $140 million of 5.2% Euronotes due June 2005 and Omnicom's convertible debt. As previously disclosed, Omnicom could be required to repurchase $850 million of its convertible debt in February 2003 and up to an additional $900 million in August 2003. A rating change would not affect interest rates, maturity dates or repurchase dates or terms of any of this debt.

“Omnicom added that it has no other long-term debt maturities before June 2003, and noted that Moody's said in its June 26th announcement that Omnicom's rating for commercial paper (currently P-2) was not under review.

“The company said its cash provided by operating activities for 2001 was $775.6 million, and again reiterated its prior guidance of 10% year-over-year growth in both revenue and earnings for the full year. The company added that it expected that net cash provided by operating activities for 2002 to surpass the prior year's amount.

“Certain statements in this press release constitute forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks and other factors that may cause our actual results to be materially different from those expressed or implied.

“These risks and uncertainties include, but are not limited to, our future financial condition and results of operations, changes in general economic conditions, competitive factors, changes to client communication requirements, and the hiring and retention of human resources. These statements are only present expectations. Actual events or results may differ materially.”

Data sourced from: and Omnicom Group; additional content by WARC staff