HEROES

Pillsbury, Burger King, and Smirnoff vodka company GRAND METROPOLITAN PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRM)") else Response.Write("(NYSE: GRM)") end if %> gained $4 3/4 to $38 7/8 after agreeing to merge with Guinness PLC, maker of Johnny Walker and Dewar's scotch and Guinness beer. The combined consumer brands giant will carry a market cap of $37 billion, and will command over 5% of the world market for distilled spirits, a small share, but still a powerhouse in the fragmented market. The companies say much of $284 million in projected cost savings will come from combining the distilled spirits businesses, which is probably why the Chairman of French luxury goods maker and spirits company LVMH MOET HENNESSY LOUIS VUITTON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LVMHY)") else Response.Write("(Nasdaq: LVMHY)") end if %> objected to the merger by voting his company's 14% of Guinness shares against the combination. LVMH gained $2 to $50 3/8 on the day, as it will receive about $545 million from a special dividend as well as benefit from the appreciation of its investment.

Diversified electronics and industrial equipment manufacturer DYNAMICS CORP. OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DYA)") else Response.Write("(NYSE: DYA)") end if %> jumped $9 1/4 to $53 5/8 on agreeing to merge with electronics manufacturer CTS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CTS)") else Response.Write("(NYSE: CTS)") end if %>, which will begin a $55 per share cash tender offer for Dynamics Corp. Shares not tendered in the offer will be exchanged for CTS stock at the ratio of 0.88 shares of CTS for each Dynamics share. CTS will effectively be buying back its own stock, 44% of which is owned by Dynamics Corp. The friendly deal comes on the heels of an unsolicited stream of offers from unlucky-in-love steel company WHX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WHX)") else Response.Write("(NYSE: WHX)") end if %>, which started bidding for Dynamics at $40 a share and then raised the offer to $45.

SCANDINAVIAN BROADCASTING SYSTEM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBTVF)") else Response.Write("(Nasdaq: SBTVF)") end if %> gained $2 3/4 to $18 after announcing the appointment of new Co-Chairmen, accomplished broadcasting executives Michael Finkelstein and Ronald J. Doerfler. Finkelstein was the Chair and CEO of Renaissance Communications, which merged with TRIBUNE CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRB)") else Response.Write("(NYSE: TRB)") end if %> earlier this year. Doerfler was Chief Financial Officer of both Cap Cities, one of the most highly-regarded broadcast groups ever, and then at ABC before WALT DISNEY CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> merged with it. Doerfler's experience at a low cost, acquisition-driven Cap Cities should serve the new management team well, as Finkelstein says the European broadcast market reminds him of the days of yore in the U.S., when the acquisition field was more wide open. Disney moved up $2 1/4 to $84 1/2 on the news, as it owns 23% of SBS.

QUICK TAKES: CITRIX SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTXS)") else Response.Write("(Nasdaq: CTXS)") end if %> exploded $13 3/8 higher to $32 5/8 after announcing a licensing agreement with MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> for its WinFrame thin client/server software... Heavy equipment sales and leasing company AMERICAN UNITED GLOBAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AUGI)") else Response.Write("(Nasdaq: AUGI)") end if %> surged $2 1/8 to $6 as investors believe Microsoft's endorsement of Windows thin client/server systems augurs well for investments American United has made in the software industry... VCR Plus+ maker GEMSTAR INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GMSTF)") else Response.Write("(Nasdaq: GMSTF)") end if %> gained $3 to $18 3/8 on a delayed reaction to its merger with StarSight Telecast Inc., which makes on-screen TV guides for VCRs and TVs... CADBURY SCHWEPPES PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSG)") else Response.Write("(NYSE: CSG)") end if %> rose $1 5/8 to $36 1/2 as the U.K. consumer products company reacted to the merger agreement between Guinness and Grand Metropolitan... Women's retailer PAUL HARRIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAUH)") else Response.Write("(Nasdaq: PAUH)") end if %> was marked up $2 to $17 after reporting last week a 3% increase in April same-store sales... ZORAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZRAN)") else Response.Write("(Nasdaq: ZRAN)") end if %> bolted $2 7/8 higher to $18 after introducing a single chip DVD solution... Remote access products company PREMISYS COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRMS)") else Response.Write("(Nasdaq: PRMS)") end if %> gained $1 7/16 to $11 3/4 after being mentioned in this week's Barron's in an article entitled "Some Beaten-Down Stocks Revive"... PANAVISION INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PVI)") else Response.Write("(NYSE: PVI)") end if %> moved up $1 3/4 to $17 7/8 after the motion picture equipment company last week announced the purchase of a British film equipment distributor... Integrated steel mills made gains today on a positive outlook for the U.S. auto industry. Making moves today were U.S. STEEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: X)") else Response.Write("(NYSE: X)") end if %>, up $1 1/4 to $31 5/8; NATIONAL STEEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NS)") else Response.Write("(NYSE: NS)") end if %>, which gained $1 1/8 to $12 7/8; and INLAND STEEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IAD)") else Response.Write("(NYSE: IAD)") end if %>, up $1 5/8 to $25 3/8... Engine maker DETROIT DIESEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DDC)") else Response.Write("(NYSE: DDC)") end if %> gained $2 1/2 to $23 1/2 and CUMMINS ENGINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CUM)") else Response.Write("(NYSE: CUM)") end if %> rose $2 1/8 to $61... Oil drillers and service companies moved higher today, with beaten-down UNITED MERIDIAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UMC)") else Response.Write("(NYSE: UMC)") end if %> gaining $3 1/4 to $35 3/4; J. RAY MCDERMOTT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JRM)") else Response.Write("(NYSE: JRM)") end if %> up $1 5/8 to $21 1/2; ROWAN COS. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RDC)") else Response.Write("(NYSE: RDC)") end if %> rising $1 1/8 to $21; and READING & BATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RB)") else Response.Write("(NYSE: RB)") end if %> adding $1 5/8 to $25 3/8... PHARMACIA & UPJOHN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PNU)") else Response.Write("(NYSE: PNU)") end if %> moved $1 5/8 higher to $33 3/4 after the company's new Chair said the company is not for sale, which traders in Stockholm took to mean "at this price."

GOATS

INTERNEURON PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IPIC)") else Response.Write("(Nasdaq: IPIC)") end if %> fell $1 1/4 to $15 3/4 after the Wall Street Journal ran an article about flattening sales for Redux, the company's flagship drug for obesity. One reason for the flat sales going forward comes from the reduction in maximum up-front royalty payments from marketing partner AMERICAN HOME PRODUCTS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %>. One problem that might be keeping customers away from the product, which suppresses the appetite, is the side-effect of pulmonary hypertension suffered by 23 to 46 people in a million who take the drug, according to The New England Journal of Medicine. Currently, Redux is slated for Phase 4 post-marketing studies. Finally, the article goes on to say that insurance approvals are far from universal and that the drug is not the panacea that some had hoped for, in that it requires the same dieting and exercise regimen that other weight reduction methods require.

Remote access products company VERILINK CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRLK)") else Response.Write("(Nasdaq: VRLK)") end if %> dropped $1 to $6 7/8 after Hambrecht & Quist cut its 1997 EPS estimate to $0.22 on revenues of $57 million from the former estimate of $0.36 on revenues of $63 million. H&Q also lowered its rating on Verilink to "hold" from "buy." Analyst Joe Noel said customers NORTHERN TELECOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NT)") else Response.Write("(NYSE: NT)") end if %> and QUALCOMM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QCOM)") else Response.Write("(Nasdaq: QCOM)") end if %> pushed out orders again, which will drive Q4 results to a loss of $0.06 per share. Push-outs from these customers indicate that wireless telecom order patterns remain spotty, which was one of the factors that also brought down remote access products maker PREMISYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRMS)") else Response.Write("(Nasdaq: PRMS)") end if %> earlier this year. At the new estimate, Verilink is trading around 31 times 1997 earnings with a 1997-1998 estimated forward growth rate of 182%.

QUICK CUTS: Fiberoptic cable and networking equipment company TELCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TELC)") else Response.Write("(Nasdaq: TELC)") end if %> was dumped for a $1 3/4 loss to $10 1/2 after Robinson-Humphrey Co. cut its short-term rating on the company to "market perform" from "buy"... AMERICAN RESIDENTIAL SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARS)") else Response.Write("(NYSE: ARS)") end if %> continued downward, losing $1 1/2 to $19 7/8, after reporting disappointing earnings late last week... LEHMAN BROTHERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LEH)") else Response.Write("(NYSE: LEH)") end if %> ticked down $2 3/8 to $36 3/4 as traders continue to speculate about the investment bank and trading company's takeover prospects.

FOOL ON THE HILL
An Investment Opinion by Randy Befumo

Super Fred

The "Wal-Mart of the Pacific Northwest" and one of the largest supermarket chains in the Southwest have decided to become one. FRED MEYER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FMY)") else Response.Write("(NYSE: FMY)") end if %> announced the acquisition of SMITH'S FOOD & DRUG CENTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFD)") else Response.Write("(Nasdaq: SFD)") end if %> in a stock deal. Executives at both companies believe that the merger will be accretive to fiscal 1998 earnings because of anticipated cost savings. The combined retail giant will have booked $6.75 billion in trailing revenues over the past year with a strong retail presence in the Southwest and the Pacific Northwest, from El Paso to Seattle. Fred Meyer will have leading market share in Las Vegas, Phoenix, Portland, Salt Lake City and Seattle. The terms of the deal value each share of Smith's at 1.05 shares of Fred Meyer. The entire price tag for Smith's is $1.93 billion, including the assumption of $1.21 billion in preferred stock, debt and other long-term liabilities.

Why is a diversified retailer like Fred Meyer purchasing a grocery store? With about one-half of Fred Meyer's current sales coming from food, it is a business the company is quite familiar with and one in which it wants to expand. Of the combined company's 373 stores, 251 will sell food. The "Super Wal-Mart" format that WAL-MART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %> has been rolling out over the past two years that melds a grocery store with a Wal-Mart is a format that Fred Meyer has already been perfecting in an attempt to reduce the cyclicality of its revenues. With Fred Meyer based in BOEING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %> country, every time Boeing catches a cold, Fred Meyer ends up in critical care. By selling more food and less of other merchandise, Fred Meyer gets more consistent revenue growth even when pockets in the region are pinched due to cyclical downturns in the aerospace industry.

The merger with Smith's Food & Drug cements the food-merchandise strategy and allows both companies to become more competitive with traditional grocery stores and discount retailers adding food as a way of increasing revenues. After the merger, the company will have 113 supermarket-discount retail units, 151 supermarkets and 109 specialty stores, including 104 jewelry stores. The trend in the supermarket industry in general has been bigger is better, with SAFEWAY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFY)") else Response.Write("(NYSE: SFY)") end if %> recently taking out Vons and a foreign supermarket chain buying up Stop and Shop. With a larger store base, supermarkets get more even revenue growth and better purchasing power. This merger makes a lot of sense for Fred Meyer in particular because it is a cost-effective way of expanding its successful grocery operations.

The new company will have a significant amount of debt on the balance sheet. Prior to the merger, Fred Meyer had $521 million in long-term debt, giving it a debt-to-capitalization level of 31.7%. Although this may appear high, it is only half of Smith's 62.9% debt-to-capitalization level. Almost all of the debt that Fred Meyer is assuming with the purchase of Smith's is the result of Smith's aggressive recapitalization at the hands of one of its largest shareholders. On May 23, 1996, Yucaipa Companies directed Smith's to repurchase approximately one-half of its outstanding shares at $36 a share. To finance this purchase, Smith's took on $805 million in debt and issued $575 in Senior Subordinated Notes. The recapitalization essentially reworked the total capitalization of Smith's, exchanging stock that management believed was undervalued for debt financed at rates deemed attractive. Although the company issued 3.2 million new shares at roughly the same time in order to acquire another grocery chain called Smitty's, it reduced the shares outstanding to 16.2 million from 25.1 million.

With Smith's recapitalization having driven the stock up from the low $20s to the high $30s, why would it ever want to merge with Fred Meyer? The company believes that it can generate $65 million per year in cost savings from improved operating efficiencies and refinancing the debt of the combined entity. With Fitch Investor Service already on the wires calling the deal "credit positive," refinancing some of Smith's debt that is currently at 11.25% could create substantial rewards in the form of increased earnings per share. The combined company's cash flow can handle Smith's interest expenses much more readily and will pay down Smith's enormous debt at a much faster rate. Some additional cost savings will come from a purchasing collective run by one of Smith's largest shareholders, Yucaipa Companies. With Fred Meyer added to the pot, the Yucaipa-affiliated Best Practices cooperative will have $15 billion of purchasing power. Assuming that the $65 million cost savings number is legitimate, it will translate into $1.49 EPS over the course of a year on Fred Meyer's new share base of 43.7 million shares.

Current earnings estimates called for Fred Meyer to make $2.67 per share in fiscal 1998 on 26.7 million shares, or $71.3 million. Smith's Food & Drug is on a slightly different fiscal year and is currently estimated to earn $2.02 per share over the next four quarters on 16.2 million shares, or $32.7 million. On a combined basis, the company should earn $2.39 per share. If the company really can generate $65 million in cost savings in Fred Meyer's fiscal 1998, this would boost expected earnings by 63% to $169 million, or $3.87 per share. Even if the company only hits its cost savings target mid-way, it will still make $3.13 per share and leave the heavily leveraged stock at 13.6 times earnings. With an enterprise value after the merger of $3.6 billion, the company has an enterprise value-to-sales ratio of 0.53.

Since Fred Meyer is located in seven of the fastest-growing states in the country, 13.6 times forward earnings might be a low valuation when compared to Wal-Mart's valuation of 19 times forward earnings. However, investors will probably not pay a premium for Fred Meyer until it cuts the $1.8 billion in debt that it is currently carrying to a more reasonable level. For example, Wal-Mart only has $523 million in long-term debt despite the fact that it is more than 15 times larger than Fred Meyer. Wal-Mart's enterprise value-to-sales ratio is currently 0.63. Should Meyer aggressively pay down this debt, shareholders will likely reap significant benefits as the market value increases as a result.

CONFERENCE CALLS

CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>
Replay available through 5/16
(800) 633-8284 (code: 2624093)

CITRIX SYSTEMS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTXS)") else Response.Write("(Nasdaq: CTXS)") end if %>
To Discuss Agreement with Microsoft
(800) 475-6701 (code 342099)

Standard & Poors
On sovereign credit risks in “dollarized” economies
(800) 925-0884

AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>
(800) 633-8284 (code 2604899)

INFORMIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFMX)") else Response.Write("(Nasdaq: IFMX)") end if %>
Available until 5/16
(800) 839-8790 -- replay

05/13/97 (Tuesday)
DOLLAR GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DG)") else Response.Write("(NYSE: DG)") end if %>
11:00 a.m. EDT
(402) 220-1032 -- replay available after 1:00 p.m. EDT through 5/16 @ 6:00 PM EDT

05/13/97 (Tuesday)
GENZYME CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZ)") else Response.Write("(Nasdaq: GENZ)") end if %>
(regarding contract with Cleveland Clinic to purchase Seprafilm)
(402) 220-6030 -- replay from 3:00 p.m. EDT through 5/20 @ 5:00 p.m. EDT

05/13/97 (Tuesday)
APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %>
After 7:30 p.m. EDT
(800) 642-1687 (code: 353749) -- replay

05/14/97 (Wednesday)
BELL & HOWELL COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BHW)") else Response.Write("(NYSE: BHW)") end if %>
Shareholder Meeting Live Webcast
9:00 a.m. EDT

THIS WEEK'S CONFERENCE CALL SYNOPSES

US ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %> Q2 Conference Call
AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> Q3 Conference Call

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ANOTHER FOOLISH THING
The Daily Double!

Stock ideas? Stock ideas, anyone? If you've Foolishly armed yourself with stock evaluation know-how, but are stumped when it comes to finding promising companies, rejoice! Your friend the Fool, is happy to announce an exciting new feature -- the Daily Double! Penned by our own Fools, Mark Weaver and Louis Corrigan, the Daily Double will introduce you each day to a company whose stock has doubled in the past six months, adding their own thoughts on whether it is now overvalued or undervalued, a great momentum play or a bubble bound to burst. It's educational and handy, and best of all -- it's free! You'll find it every day under our Stock Research button. (E-mail subscriptions are available at FoolMart.)

Randy Befumo (TMF Templr), a Fool
Fool Plate Special

Dale Wettlaufer (TMF Ralegh), another Fool
Ups & Downs

Brian Bauer (TMF Hoops), yet another Fool
Editing

Julia Wilson (TMF Delete), and still another Fool
Editing