Private information about upcoming merger announcements can be very lucrative to informed investors, and attempts to profit from this information may influence preannouncement stock prices. Schwert (1996) shows that on average, this pre-bid runup is a cost to the bidder, which must add its premium on top of it, rather than substituting runup for premium. Runup can be caused by changes in a target's standalone value (that lead to a bid) or anticipation of the pending bid. The latter would be driven by informed trading so this paper studies announced mergers to see if takeover bids account for preannouncement abnormal returns and preannouncement levels of informed trading in target firms' trade flow. Using the Easley and O'Hara (1996) framework for trade flow as a proxy for informed trading, I show that the three day announcement returns for target firms decrease with preannouncement returns and levels of informed trading, which shows that the preannouncement abnormal returns include information about the merger. Furthermore, I show that the premium paid to target firms is sensitive to the level of informed trading. Also, the premium decreases when both bidder informed trading and preannouncement abnormal returns are high. The amount of stock used as takeover compensation increases as levels of informed trading increase. Also, bidders' announcement returns decrease when the takeover premium and informed trading are high. The results are qualitatively robust to the specification of the informed trading variable. Taken together, the evidence suggests that bidding firms protect themselves from potentially overpaying for a target firm by adjusting the bid to account for levels of informed trading in the target stock.