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On news of a takeover, the sum of the stock market values of the firms involved often falls, and the value of the acquirer almost always does. Does this mean that takeovers do not raise the values of the firms involved? Not necessarily. We set up a model in which the equilibrium number of takeovers is constrained efficient. Yet upon news of a takeover, a target's price rises, the bidder's price falls, and most of the time the joint value of the target and acquirer also falls. (JEL L1, G3, D8)doi:10.1257/000282804322970698 fatcat:prj3miygqzbolnya3farynzdy4