IPG Sells $800 Mil. In Convertible Notes To Refinance Issue

Interpublic Group last week raised $800 million to refinance a troublesome zero-coupon issue that is coming due this December.

The holding company originally quoted the offering as a $700 million issue, but allowed its underwriter to sell $100 million more because of demand for the 20-year convertible senior notes, which pay 4.5 percent interest. The sale takes some pressure off IPG, whose credit rating was relegated to junk status on March 7 by Standard & Poor’s. IPG also has been struggling with declining profits and a stock price that has fallen by about two-thirds in the past year. With the cash infusion, IPG can buy back the zero-coupon issue, valued at $586 million. It also eases some of the spending restraints imposed by the company’s banks, allowing IPG to restore dividend payouts.

Announcement of the issue last Monday triggered a massive increase in trading volume of IPG shares, with 38.9 million shares changing hands at one point last Tuesday—more than 15 times the average volume. Financial observers attributed the jump to arbitrage activity and the new notes.

The conversion price of the notes is $12.42 a share, representing a 55 percent premium over IPG’s closing price of about $8 last Monday. The bonds become convertible into IPG shares under several scenarios, according to Merrill Lynch analyst Lauren Rich Fine; one would be if the average price of IPG shares over 20 days reaches a 20 percent premium over the conversion price. When the new bonds become convertible, Fine expects a 7-8 percent dilution of IPG shares. —NO’L