Takeovers, Joint Ventures and the Acquisition of Resources for Diversification

This paper explores the influence of acquisition costs on the choice between the takeover and joint venture modes of obtaining the resources required for diversifying expansion. It uses the conditions created by privatisation in the UK utility sector as a natural experiment to examine the determinants of mode choice across groups of firms with unusually homogeneous opportunity sets. The empirical design is able to incorporate acquirer, target and geographical market variables as explanatory factors in mode choice. It is shown that the form of diversifying expansion adopted is highly sensitive to the anticipated costs of using the acquisition process.