Industry aspects of takeovers and divestitures: Evidence from the UK

This paper examines takeover and divestiture activity at the industry level for the population of UK firms over the period 1986 to 2000. Consistent with US research, takeovers and divestitures in the UK cluster both across industries and over time. The paper further investigates whether broad economic shocks, industry-specific shocks (e.g., deregulation, foreign competition, technology) and misvaluation explain takeover and divestiture clustering at the industry level. The results provide strong evidence for broad shocks increasing (decreasing) the likelihood of takeovers (divestitures). Industry-specific factors are less important, although for takeovers, growth, free cash flow and the threat of foreign competition some significance. Deregulation, on the other hand, is only significant for the late 1990s period. Further investigation reveals that for some UK industries deregulated in the late 1980s (e.g., Electricity and Water), takeover activity was prevented for up to 5 years after deregulation through the use of the ‘golden share’ by the UK government. JEL classification: G14; G34