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Record year for mergers
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November 4, 1996: 8:41 p.m. ET
Banker says Penney/Eckerd deal just one of many mergers to come
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NEW YORK (CNNfn) -- When J.C. Penny Co. agreed Sunday to spend $2.54 billion to buy Eckerd Corp., a chain of 1,724 drug stores, it was overshadowed by the $22 billion deal between British Telecom and MCI Corp.
Despite the huge disparity in value, both deals did share one thing in common: They helped swell the record number of mergers that have occurred in 1996.
And one investment banker said it is likely the two deals will fuel that pace into next year as competitors join the merger parade.
"What happens in the drug business, what happens in the supermarket business, what's happening in the department store business and is happening in the telephone business is that the big are getting bigger," said Peter Solomon, an investment banker at Peter J. Solomon Co., in an appearance on CNNfn's Before Hours Monday.
"There is a real frenzy going on internationally and in the U.S. to make sure you are the consolidator," he added.
He said the pressure to cut costs and increase growth led many companies to team up.
Speaking of J.C. Penney's acquisition of Eckerd, Solomon said the company had decided a year or two ago to expand its drugstore chain rapidly after foreseeing a consolidation in the industry.
The deal comes after a long string of drug chain acquisitions, including Revco's $380 million purchase of Big B Inc. last week.
The drug chains are merging, Solomon said, to meet the demands imposed on them by insurance companies and other third-party drug providers. (111K WAV) or (111K AIF)
Though the high level of merger activity is good for investors and investment bankers, they are also good for consumers, Solomon said.
Solomon said the strategic mergers seem to be making sense in a way that the financially-driven mergers of the 1980s did not. Consumer prices are falling as a result.
While the merger craze in the drugstore business may be running its course, Solomon said he expects more consolidation in other industries, particularly in the technology sector.
"This is the largest year in history for mergers," he said, but he predicted the torrid pace would continue regardless of what the stock market does.
"If the market goes down," he said, "you will have more mergers. If the market goes up you will have more mergers. So 1997 will be a bigger merger year than 1996." 
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