HEROES

American Depository Receipts (ADRs) of BRITISH TELECOMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTY)") else Response.Write("(NYSE: BTY)") end if %> soared $6 1/8 to $61 5/8 after announcing it would purchase the remaining 80% of MCI COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MCIC)") else Response.Write("(NASDAQ: MCIC)") end if %> that it already does not own. The deal would make the resulting company -- to be known by the nom de phone "Concert" -- the first truly international telecom company ever. Under the proposed terms of the merger, each share of MCI Communications would be converted into 0.54 shares of British Telecommunications ADRs plus $6.00 in cash, worth $39.28 as of today's market close. The $30.5 billion deal fashions a single company with $42 billion in trailing revenues, $12 billion in cash flow and 43 million customers in 72 countries. As a result of the merger, the companies believe they will be able to trim as much as $850 million from annual operating expenses within five years. Both companies will continue to market their services under their existing brand names.

Falling interest rates have caused a resurgence in banking mergers with two deals announced just today. GROVE BANK OF BRIGHTON, MASS. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GROV)") else Response.Write("(NASDAQ: GROV)") end if %> is being purchased by Citizens Financial for $58 a share (1.78 times book value), causing the firm to jump $11 7/8 to $48 7/8. Citizens Financial is a U.S.-based bank 76.5%-owned by the Royal Bank of Scotland with the remainder held by the Bank of Ireland, meaning that British Telecom ain't the only company in the U.K. making the grab for American assets today. Even bigger was SOUTHERN NATIONAL'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNB)") else Response.Write("(NYSE: SNB)") end if %> bid for UNITED CAROLINA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UCAR)") else Response.Write("(NASDAQ: UCAR)") end if %> to make the largest bank in North Carolina and the 29th largest bank in the country. United Carolina rose $8 1/2 to $36 while Southern National dropped $1 3/4 to $33 1/2. Southern is issuing 1.135 shares for each stub of United Carolina, valuing the company at $38 a share. This deal is going through at a whopping 2.62 times book value, up from 1.73 before it was announced.

GYNECARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GYNE)") else Response.Write("(NASDAQ: GYNE)") end if %> leapt $2 1/8 to $7 1/2 after the company's VersaPoint product received Food & Drug Administration (FDA) approval. VersaPoint is a device that vaporizes, cuts or desiccates uterine fibroids -- fibrous and non-cancerous tumors that form around the uterus. About 30% of the hysterectomies done every year are done because of fibroids, which can cause discomfort and pain. VersaPoint is a minimally-invasive outpatient procedure that can be done under local anesthetic -- a big difference from the traditional myomectomy done under general anesthesia. Despite the promise surrounding the procedure, investors are cautioned to remember the rise and fall of TRIMEDYNE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TMED)") else Response.Write("(NASDAQ: TMED)") end if %>, a small medical products developer with a similarly wretched balance sheet that ran all the way to $16 on hopes for its side-firing laser fibers and Nd:YAG thermal lasers designed to treat benign prostate hyperplasia (BPH).

QUICK TAKES: MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> climbed $3 to $28 1/8 after Tom Kurlak of Merrill Lynch upgraded the stock to long-term "buy" from "hold"... CHECKPOINT SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKP)") else Response.Write("(NYSE: CKP)") end if %> flew up $2 3/8 to $24 5/8 after announcing its largest order ever from AMERICAN STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASC)") else Response.Write("(NYSE: ASC)") end if %>... HIGHWAYMASTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HWYM)") else Response.Write("(NASDAQ: HWYM)") end if %> jumped $2 5/8 to $21 1/4 after announcing a big deal to build out a nationwide auto communications network with blue-chip MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>... TOMMY HILFIGER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOM)") else Response.Write("(NYSE: TOM)") end if %> rose $1 5/8 to $55 3/8 on better-than-expected earnings.

GOATS

SIERRA HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SIE)") else Response.Write("(NYSE: SIE)") end if %> tumbled $5 to $23 7/8 after the diversified health maintenance organization and health insurance concern announced the acquisition of PHYSICIAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PCAM)") else Response.Write("(NASDAQ: PCAM)") end if %>. Each shareholder of Physician will receive 0.45 shares of Sierra Health, worth approximately $10 3/4 per share, putting the value of the acquisition at $421 million. Physician Corp. provides healthcare services through HMOs, third-party administrators, and worker's compensation/insurance companies, making this purchase a "vertical" acquisition -- Sierra is buying a provider of services in order to stop having to pay for the services itself, potentially increasing its margins. The market did not agree with this strategy or price, however, with at least three analysts downgrading the firm because of the dilution that will result from the acquisition. Dilution is when a company issues stock in an acquisition, which decreases the percentage of the company's earnings that each share receives, since there are more outstanding shares.

Biotechnology stocks were percolating for unknown reasons today. BRITISH BIO-TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BBIOY)") else Response.Write("(NASDAQ: BBIOY)") end if %> shares were down $3 7/8 to $34 1/2 in what some were calling "profit-taking," although profit-taking tends to be a euphemism for "we have no idea why the stock is down." The company recently passed its penultimate trial for Marimstat, a drug that reduces the rate of growth in colorectal cancer. GENZYME'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GENZ)") else Response.Write("(NASDAQ: GENZ)") end if %> $1 3/4 to $20 3/8 drop warranted a press release from the company explaining that it knew of no reason why the stock was down. GENZYME TRANSGENICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GENZZ)") else Response.Write("(NASDAQ: GENZZ)") end if %> also slipped $1 3/4 to $6 1/4.

QUICK CUTS: FOSTER WHEELER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FWC)") else Response.Write("(NYSE: FWC)") end if %> dropped $4 7/8 to $35 1/8 forecasting lower-than-expected revenues in 1997... BUSINESS OBJECTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BOBJY)") else Response.Write("(NASDAQ: BOBJY)") end if %> got fried for $2 to $11 1/4 after Alex. Brown cut the stock from "buy" to "neutral"... STANDARD MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SMSC)") else Response.Write("(NASDAQ: SMSC)") end if %> dropped $1 3/8 to $9 after reporting it would not make any money in its semiconductor operations... PTI HOLDING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PTII)") else Response.Write("(NASDAQ: PTII)") end if %> fell $1 1/8 to $8 1/2 after reporting quarterly earnings of four cents a share today... SPRINT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %> slipped $1 5/8 to $41 7/8 due to the prospects of a tougher competitive environment after British Telecom's move to buy MCI.

FOOL ON THE HILL
An Investment Opinion by MF Templar

J.C. Penney's Drugstore Binge

J.C. PENNEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCP)") else Response.Write("(NYSE: JCP)") end if %> accelerated the breakneck pace of consolidation in the drug store industry today by adding ECKERD CORP.'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECK)") else Response.Write("(NYSE: ECK)") end if %> 1,715 stores to its Thrift Drug unit. The deal will net shareholders of Eckerd roughly $35 in cash and stock and will cost Penney approximately $3.25 billion in cash, stock and assumption of long-term debt. The news pushed shares of Eckerd up $4 13/32 to $33 9/32 today, dragging shares of Penney down $1 7/8 to $51 1/8. Although most people think of Penney as a retailer, it has always had substantial drug store operations as well as running department stores. Penney's decision to focus on its drug store operations was no doubt influenced by its unsuccessful bid for DAYTON HUDSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %> earlier this year, and building those drug stores up means buying more units.

Consolidation in the drug store business is being driven by managed care, a force to be reckoned with. Because of their large buying power, health maintenance organizations have tipped the pricing scales and hurt drug store margins over the past decade. The solution to this has been to get big and explains why Penney was so willing to make this purchase after two similar buys so far this year. Penney purchased 200 stores from RITE-AID <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RAD)") else Response.Write("(NYSE: RAD)") end if %> to facilitate Rite-Aid's merger with THRIFTY PAYLESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TPD)") else Response.Write("(NYSE: TPD)") end if %> and concluded a merger with Fay's Drug Stores last month. REVCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RXR)") else Response.Write("(NYSE: RXR)") end if %> also recently acquired BIG B <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BIGB)") else Response.Write("(NASDAQ: BIGB)") end if %> and Medicine Shoppe was nabbed by CARDINAL HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CARD)") else Response.Write("(NASDAQ: CARD)") end if %> about a year ago. If this deal happens, Penney will be one of the largest drug store operators with more than 2,800 locations in the United States with combined revenues of almost $10 billion per year.

The hopes for continued consolidation pushed shares of other potential acquisitions up today. Michigan-based ARBOR DRUGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ARBR)") else Response.Write("(NASDAQ: ARBR)") end if %> rose $2 to $24 5/8 while California-based LONGS DRUG STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LDG)") else Response.Write("(NYSE: LDG)") end if %> climbed $2 5/8 to $47 1/2. The drug store operations of AMERICAN STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASC)") else Response.Write("(NYSE: ASC)") end if %>, GENOVESE DRUG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GDX.A)") else Response.Write("(NYSE: GDX.A)") end if %> and troubled small-fry such as PHARMHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PHSE)") else Response.Write("(NASDAQ: PHSE)") end if %> and DRUG EMPORIUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DEMP)") else Response.Write("(NASDAQ: DEMP)") end if %> are all long shots. The potential acquirers besides those already buying include the newly repositioned MELVILLE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVS)") else Response.Write("(NYSE: CVS)") end if %> and WALGREEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAG)") else Response.Write("(NYSE: WAG)") end if %>, despite the fact that both companies say they would prefer to build new stores and integrate past acquisitions. Walgreen in particular is still sore over its purchase of Stop & Shop's Media Mart in the late '80s. There are likely to be a lot of small acquisitions remaining, however, as 40 percent of the $70 billion industry is still small local stores.

The potential wrinkle in this deal is the Federal Trade Commission (FTC), which iced the Revco/Rite-Aid combination because it was anti-competitive. Even though the Penney's acquisition does not give it too many stores in any one territory, the FTC's politically inspired mandate also includes ensuring drug prices continue to come down. The FTC does not want the drug store industry to be so efficient that it causes the balance to tip back in their favor on pricing, accelerating healthcare inflation again. Although Eckerd's price today suggests the market does not think it is possible, the market also believed initially that Rite-Aid and Revco would go through. Any shareholder of Eckerd who knows they do not want to own J.C. Penney should consider the possible ramifications of an FTC ruling that either scuttles this merger or affects Rite-Aid's. The pressure is on to communicate the new mandate to the drug industry and one of these deals could become a sacrificial lamb.

FOOLISH FEATURES

The Lunchtime News featured a Fool Plate Special on the MCI/British Telecom merger. We'll be expanding that out into a special collection for tonight.

CONFERENCE CALLS

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