This paper sets out to empirically analyse the impact of mergers and acquisitions on shareholders returns. It uses the U.K. data for 60 companies that were involved in takeovers in the period between 1992-95. The paper assesses stock market response to the announcement of takeover bids for these randomly chosen successful bids in order to establish whether or not it is indicative of gains from mergers. The study finds that there are significant abnormal returns earned by shareholders of the target firms on the month the merger is announced. In contrast, the returns earned by stockholders of the bidding firms were found to be modest. Regarding the post-event study for bidding firms, given the predominant paradigm in finance (i.e., capital market efficiency), the study shows that takeovers have some impact on the stockholders wealth. The paper argues however that despite such negative returns, there no necessary implications of market inefficiency based on the speed with which the information about merger is impounded in the share prices of the bidders