This paper explores the influence of acquisition costs on the choice betwee
n 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 determinan
ts of mode choice across groups of firms with unusually homogeneous opportu
nity 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.