If you bought C.I.T. Financial Corp. stock on June 26, you would have been pleased on July 5.
The final Tuesday in June was the last day that C.I.T. traded normally, closing up slightly to $35.75 a share on a volume of 112,000.
But if you had waited until July 3 or 5, when four days of rumors of a possible C.I.T. acquisition were confirmed first by C.I.T., then by its RCA Corp. suitor, you would not be happy at all today.
By July 5, when 619,000 shares of the finance company traded hands, C.I.T. had risen to $53.375 a share.
On July 10, however, RCA called off the impending marriage, less than a week after asking for C.I.T.'s hand. A lot of investors were left holding a stock that plummeted more than $12 a share in that day.
The RCA-C.I.T. courtship was shorter than most Wall Street dalliances, but is illustrates well the risks an investor takes when he plays takeover roulette.Although the professional risk-takers, the so-called arbitrageurs - make the most profits or absorb most of the losses when a takeover attempt succeeds or fails, many small investors find the allure of an overnight killing too tempting to resist.
Of course, if RCA had offered the $60 to $67 a share that most Wall Street analysts predicted, even a $53 purchase on July 5 would have netted a nice return.
And since C. I. T. remains a strong takeover candidate, an investor who sticks with the company may well reap a nice reward.
"I wouldn't be surprised to see someone else come around (for C. I. T.) or even to see RCA come around again," said one respected analyst.
But patience is not the hallmark of the merger game. Investors tend to play with the emotion of a weekend horseplayer. Since most buy the stock when it's on the way up - both in trading activity and price - most sell when the deal falls through or, often, when the deal stalls.
That type of activity generates a lot of commissions for brokers, but does little for the investors' port-folios.
C.I.T. is only the latest example of the problems an investor might face if he or she purchases a stock without regard to the so-called fundamentals, but merely with an eye to making a quick killing.
When Carter Hawley Hale Stores Inc. made an offer to acquire the Chicago retail giant Marshall Field & Co. at $36 a share (subsequently raised to $42), Field stock rose smartly even though the old-line State Street department store faced serious merchandising and profit problems. Field traded around $22 a share the day before Carter made its initial bid in mid-December 1977. When Carter terminated the offer two months later, after stiff Field opposition, the Chicago company's stock fell from more than $27 a share to about $19.
Today, with neither suitor nor profit increases on the horizon, Field is trading for less than $18 a share.
Those who bought McGraw-Hill in January on the news of a generous offer from American Express were similarly stunned. McGraw-Hill chief executive Harold McGraw spent millions of the company's money to ward off the $40 a share bid. McGraw-Hill stock ran up from about $26 to $34 a share on the excitement of the offer.
McGraw, as one of his multitude of defenses, said $40 was too low for the giant publishing company. Today McGraw-Hill is trading for less than $25.
All three companies - C. I. T., McGraw-Hill and Marshall Field - may be fine investments in their own right. C. I. T. is a well-run finance company with good cash flow. McGraw-Hill has branched out into many areas of communications, although Business Week remains its flagship. Marshall Field, while a stodgier marketer than some of its Chicago competitors, is trying to refurbish its image while maintaining its reputation of service.
But certainly Field and to a lesser extent McGraw-Hill will require investor patience. Those who bought them at the height of the merger fever and who did not unload them when the deals were called off will have to wait to recoup their investment.
Those who sold when the takeovers were aborted, however, have no chance to recover their losses.
Of course, not all mergers fall through. Many are consummated and investors realize a gain. Those who bought Fairchild several months ago when rumors of a takeover bid by Gould surfaced - and held on to the stock in the uncertain weeks when no bid was forthcoming - did well.
Fairchild climbed to around $45 a share on the initial rumor, declined again, but rose smartly when Gould finally came through with a $54 offer. Schlumberger finally outbid Gould with a $66 a share tender.
But for every happy Fairchild shareholder there is a C. I. T. or a Marshall Field investor with a tale of woe.
For the small investor with an interest in the merger game there are only two important guidelines: Do not buy in the heat of merger moment and more important do not buy a stock that is not worth having in the first place.