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Omnicom's Debt Rating Downgraded

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NEW YORK Moody's Investor Service downgraded Omnicom's senior unsecured debt rating on Wednesday, citing the holding company's use of debt for acquisitions, the weak ad climate and the uncertain overall economy.

The senior unsecured debt dropped from A3 to Baa1. "This is not a complete surprise, given recent Moody's comments related to viewing the OMC's converts as short term debt," Merrill Lynch analyst Lauren Fine wrote in a report Thursday. Fine reiterated a "buy" rating on Omnicom shares, though, saying the stock was trading a significant discount to Merrill's earnings estimates for 2003 and 2004.

Omicom's debt rating had been on review by Moody's since last June, but news of the downgrade comes on the heels of Omnicom's surprisingly strong Q4 earnings report. On Tuesday, the company reported a 9 percent jump in net income for the quarter. Moody's did observe that "Omnicom has fared much better in differentiating itself in comparison to its peers in managing very well through the roughest advertising climate in half a century."

On Thursday afternoon OMC shares were trading at $51.39, off about 10 percent from Tuesday's close of $57.35.