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In my February 19th blog: “How to lose a lot of money in the market,” we looked at how investing in companies that are the target of unsolicited takeovers could be detrimental to the health of one’s portfolio. To illustrate this point I chose scientific equipment maker Zygo (NASDAQ: ZIGO) as my posterchild.

A brief history of the proposed merger
Briefly, II-VI (Nasdaq: IIVI) made an unsolicited offer for Zygo in January for $10 per share, well over the current $7 per share price. Hoping for a bidding war, investors were willing to pay up to $11 for the stock, but Zygo’s board threw cold water on that notion by rejecting the deal. The stock instantly shed a buck in value.

As the saying goes, hope springs eternal, especially in the minds of traders. Still hoping that Zygo’s board would come to their senses, investors again bid up the price of the stock.

But alas, they got another kick in the shins Tuesday when II-VI formally withdrew its offer. Zygo shares shed 15% of their value, closing the day at $8.49. The real head-scratcher here is that it seems as if investors still believe there’s some chance that a takeover might happen as the stock is trading 9% above its pre-takeover high.

It’s not over ’till it’s over
It appears that the final chapter in this saga has yet to be written. We’ll find out if it will be a happy ending or a sad one for the shareholders.

ZIGO Chart 3-9-10

Source: Zygo Takeover Saga Continues