Updated from 1:18 p.m. EDT

General Mills

(GIS) - Get Report

is buying control of

Diageo's

(DEO) - Get Report

Pillsbury

in a stock-for-stock deal worth $10.2 billion. The acquisition creates the world's fourth-largest food company and nearly doubles the size of General Mills.

According to a company release, General Mills will issue 141 million new shares of common stock to Diageo and will take on $5.1 billion of Pillsbury debt. Diageo will be barred from acquiring additional shares for 20 years or until its stake in General Mills falls to less than 5%. The merger is expected to close by the end of the year and is likely to result in job losses at both companies, though officials said it is too soon to say how many.

The deal would give General Mills and Pillsbury control of most of the baking-mix market, making it necessary for General Mills to divest itself of Pillsbury dessert mixes holdings and Pillsbury's Green Giant canned vegetables unit because of overlapping business.

Lehman Brothers

(LEH)

agreed to acquire the high-net-worth retail brokerage operations of

SG Cowen

, a unit of French bank

Societe Generale

.

Dow Jones News Service

reported that both parties declined to disclose terms, but people familiar with the matter said the purchase price is higher than $50 million, a figure that was previously reported. The report said a big part of the price is a bonus pool set aside to retain key brokers.

General Electric

(GE) - Get Report

said it entered a $342 million stock deal to buy

Harmon Industries

(HRMN)

, a railroad equipment maker. General Electric said it would issue $30 of GE stock for each share of Harmon, more than a 100% premium over Harmon's Friday closing price of 13 3/16. General Electric said that including debt, the deal is valued at $425 million. Prior to the acquisition, GE joined

Harris

(HRS)

in a venture called

GE Harris Railway Electronics

.

Mergers, acquisitions and joint ventures

AES

(AES) - Get Report

, an energy company, agreed to buy utility

Ipalco Enterprises

(IPL)

in a deal valued at $2.15 billion, reported

The Wall Street Journal

. AES will also take on $890 million in debt.

Cephalon

(CEPH)

, a drug company, said it entered a $444 million stock deal to purchase

Anesta

(NSTA)

, which makes cancer pain remedies. The terms call for Anesta shareholders to receive 0.4765 share of Cephalon for each share of Anesta they own. The deal values Anesta at $31.45 a share, based on the $66 closing price of Cephalon on Friday.

Cisco Systems

(CSCO) - Get Report

has taken a $100 million stake in

Liberate Technologies

(LBRT) - Get Report

. The investment would give Cisco a 3.8% interest in Liberate, which makes interactive television software. The two companies would jointly market their services to network operators.

Georgia-Pacific

(GP)

said it has entered a cash and stock deal to acquire

Fort James

(FJ)

for $11 billion. The terms call for Georgia-Pacific, a forest products processor, to pay $29.60 in cash for each share of the paper maker, an exchange of 0.2644 share for each share of Fort James. Georgia-Pacific will also take on $3.5 billion of Fort James' net debt. The merger will make Georgia-Pacific the world's biggest tissue products maker with combined revenue of more than $24.8 billion.

Also, Georgia Pacific announced its second-quarter earnings of $1.20 a share, beating the 11-analyst estimate of $1.16 and in line with year-ago earnings.

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Earnings/revenue reports and previews

SLM Holding

(SLM) - Get Report

, the parent company of student-loan fund provider Sallie Mae, said second-quarter earnings on a core-cash basis, which measures only recurring earnings, were 70 cents a share, up from the year-ago earnings of 58 cents a share. A seven-analyst estimate had expected earnings of 68 cents a share. Second-quarter net income was 73 cents a share, compared to year-ago income of 76 cents a share.

Bank of New York

(BK) - Get Report

posted second-quarter earnings of 48 cents a share, a penny better than the 21-analyst estimate and up from the year-ago 42-cent profit.

Corning

(GLW) - Get Report

posted second-quarter earnings of 94 cents a share, topping the 11-analyst estimate of 80 cents and up from the year-ago 52-cent profit. The fiber optic company attributed the strong results to robust fiber optic cable sales and flat-panel display glass.

DaimlerChrysler's

(DCX)

U.S. division was instructed to improve its bottom line by $2 billion by the end of the year, reported

The Wall Street Journal

. The auto giant said it would make the changes mostly through cost cutting. According to the

Journal

, DaimlerChrysler said it would also roll out enhanced Web sites.

Internet healthcare company

drkoop.com

(KOOP)

warned that its greater-than-expected second-quarter loss would miss analyst estimates and that its two top executives resigned voluntarily.

Mail-Well

(MWL)

posted second-quarter earnings of 22 cents a share, greatly missing the four-analyst estimate of 31 cents and down from the year-ago 28-cent profit. The commercial printing company blamed pricing pressure in its envelope unit and higher interest charges for the shortfall.

Separately, Mail-Well said it would sell its

Jen-Coat

coating and laminating division to

Cravey, Green & Wahlen

, a private equity firm, for $100 million and said it would use the proceeds to repurchase $10 million in common stock.

Mercator

(MCTR)

warned investors that it would post second-quarter earnings of about 4 cents a share, greatly missing the 10-analyst estimate of an 8-cent profit. The software-maker cited increased sales and marketing costs as the culprit.

Rohm & Haas

(ROH)

said it expects second-quarter earnings close to 42 cents a share, excluding items. The number is far below the 13-analyst estimate of 55 cents, but up from the year-ago loss of 6 cents. The company attributed the missed earnings to high material and energy costs and a tough pricing environment.

Silicon Image

(SIMG)

reported second-quarter earnings of 5 cents a share, beating the five-analyst estimate of 2 cents and up from the year-ago loss of 13 cents. The figure excludes stock compensation and warrant expense. The company also reported that its board had approved a 2-for-1 stock split.

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Offerings and stock actions

Vodafone Airtouch

(VOD) - Get Report

said it plans an IPO for up to 49.9% of its unit

Infostrada's

shares, reported

The Wall Street Journal

. The offering is expected to raise between $3.7 billion and $5.6 billion.

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Analyst actions

Donaldson Lufkin & Jenrette

said that

Pfizer

(PFE) - Get Report

would replace

King Pharma

(KG)

on its

Growth and Focus

list, while

Allergan

(AGN) - Get Report

will replace

Psinet

(PSIX)

on the list.

Upgrades

Affiliated Computer

(ACS)

: UP to recommended list from purchase list at

Goldman Sachs

.

Canadian National Railroad

(CNI) - Get Report

: UP to market performer from buy at DLJ.

Host Marriott

(HMT)

: UP to attractive from neutral at

PaineWebber

; price target UP to 11.50 from 10.50.

VerticalNet

(VERT)

: UP to recommended list from purchase list at Goldman Sachs.

Downgrades

Energen

(EGN)

: DOWN to attractive from buy at PaineWebber.

Public Service Enterprise

(PEG) - Get Report

: DOWN to outperform from buy at

ABN Amro

.

Initiations

Anadarko Petroleum

(APC) - Get Report

: NEW strong buy at

Credit Suisse First Boston

.

Handspring

(HAND)

: NEW buy at Donaldson Lufkin & Jenrette, price target: 55; NEW buy at CSFB; strong buy at

US Bancorp

; price target: 90.

National Financial Services

(NFS)

: NEW outperform at

Lehman Brothers

; price target: 49.

Viatel

(VYTL)

: NEW buy at

J.P. Morgan

; price target: 32.

Group Moves

Lehman Brothers upgraded several health management companies:

  • Health Management (HMA) : UP to buy from neutral.
  • Humana (HUM) - Get Report: UP to outperform from neutral; price target: UP to 9.50 from 8.
  • Wellpoint Health (WLP) : UP to buy from outperform; price target: UP to 95 from 90.

Donaldson Lufkin & Jenrette upgraded several railroad stocks:

  • Norfolk Southern (NSC) - Get Report: UP to buy from market perform; price target: 20.
  • Canadian National Railway (CNI) - Get Report: UP to buy from market perform; price target: UP to 37 from 31.
  • Burlington Northern Santa Fe (BNI) : UP to buy from market perform; price target: UP to 34 from 29.
  • CSX (CSX) - Get Report: price target: UP to 35 from 29.
  • Union Pacific (UNP) - Get Report: price target: UP to 54.

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Miscellany

America Online

(AOL)

said it has agreed to offer some of its services through

AT&T Wireless Services

(AWE)

. According to the terms, AT&T Wireless'

Digital PocketNet

wireless users will have access AOL's email, news, weather and stock quote services, while MovieFone's local movie listings would be free through AT&T Wireless' Internet-ready phones as part of the AT&T Digital PocketNet basic service plan.

Microsoft

(MSFT) - Get Report

said that it has beat out

America Online

(AOL)

and

Yahoo!

(YHOO)

as the most widely used network of Web sites, with 201 million users of its services, reported in

The Wall Street Journal

.

Qualcomm

(QCOM) - Get Report

said Japanese and European patent offices have maintained three of the company's patents that protect key features of its CDMA technology. The Japanese Patent Office upheld Qualcomm's first CDMA patent, rejecting claims from

Nokia

(NOK) - Get Report

,

Ericcson

(ERICY)

and

Nippon Telegraph and Telephone

(NTT)

. Meanwhile, the

European Patent Office

maintained a patent covering technology that boosts capacity in communication systems and another that protects a part that allows users to monitor audibly a fax or modem connection over a digital channel.

WorldCom

(WCOM)

said it enlarged its international services. The long-distance company said it would expand its frame relay service to 45 countries and increase its ATM presence in 23 countries.

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