Publicis Groupe is the latest industry company to take advantage of the hot market for convertible bonds. Last week in Paris, the holding company offered $699 million in five-year convertible bonds exchangeable into Publicis shares.
The bond issue may be raised to a maximum of $762.5 million if an over-allotment option is exercised. The issue has an annual coupon of 0.75 percent, and the bond's value was set at $33, a 23.1 percent conversion premium.
The French holding company said it would use the proceeds to refinance existing debt and cut its funding needs. The deal is being led by Deutsche Bank and BNP Paribas.
Convertible bonds offer some of the benefits of stocks and bonds. They can be exchanged at the holder's option for a specific number of shares of the issuer's stock. They tend to have lower interest rates than non-convertibles—because they gain in value as the price of the underlying stock increases—providing a cheaper means of borrowing for companies than non-convertible bonds. The advantage for investors is that convertibles earn interest even when the stock is trading down.
Publicis' U.S. competitors already have tapped into investors' enthusiasm for convertibles this year. In June, Omnicom Group sold $550 million in zero-coupon, zero- accretion convertible notes to pay down debt. Three months earlier, Interpublic Group sold $800 million in convertible senior notes to fund a concurrent offer for its outstanding zero-coupon convertible senior notes.
Publicis shares closed at $25.70 in trading on the New York Stock Exchange last Thursday, down 1.53 percent from the previous day's close of $26.10.