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The tools provided by option‐pricing theory are used to examine the wealth effects of interfirm cash tender offers. The analysis provides evidence consistent with the “synergy” theory of corporate takeovers and has implications concerning the economic effects of regulations of cash tender offers. The analysis further suggests that the market prices information uncertainty in a manner not captured by the standard Capital Asset Pricing Model. The study introduces a technique for unbundling the prices of a primary asset and a contingent claim when only the prices of the combination are observed.