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In the research literature on UK take-overs there seems to be an apparent conundrum. First, it appears that, in general, the market anticipates overall equity cash flow gains from a take-over in the sense that the share price of the acquiree firm typically increases relative to some appropriately market-adjusted benchmark over the period of time from the announcement of the take-over to the date when the take-over offer is declared unconditional while the share price of the acquirer firm does not decrease over the same period of time 1 , again relative to some appropriately market-adjusted benchmark (Franks and Harris, 1989). Thus, in the view of the market the take-over adds value to the acquiree and acquirer relative to a scenario whereby the take-over did not take place. Naturally, if the market is rational in its pricing of the benefits of take-overs, it must be anticipating cash flow gains of one type or another. 2 1 There is some evidence of negative share price reactions for the acquirer firm over the same period but the bulk of the evidence on the acquirer points to a zero reaction in general.2 As is probably well known, there is some concern over the rationality of the market's assessments of the value creating aspects of mergers. In particular, in the USA, a literature exists which examines the market performance of acquirers subsequent to the take-overs and finds that there is some (disputed) evidence of poor performance in this period (see, for example, Ruback 1988 and Aggrawal, Jaffe and Mandelker 1992 on the one hand and Langetieg 1978 and Franks, Harris and Titman 1991 on the other).

The changes in operating performance associated with asset sales are investigated for a sample of UK firms. Asset sales are followed by an improvement of 11% per annum in the level of operating performance relative to the pre-sale performance level. Further, improved abnormal operating performance is found, which is measured after controlling for the performance of the industry, the pre-sale performance of the firm and the level of competition in the market for asset sales. The abnormal operating performance of the remaining assets improve by 2.4% per annum, on average, for three years after the asset sales. This study also finds that the market for asset sales is imperfectly competitive.