Divesting ownership in a rival

We examine the consumer welfare effect of a firm's partial ownership of a competitor and compare the implications of alternative forms of divestiture. We identify conditions under which turning voting shares into nonvoting shares is preferable to selling the shares to the firm's current shareholders (an option frequently chosen). We also show that selling the voting shares to a large independent shareholder is preferable to selling them to small shareholders. We provide additional theoretical results and apply them to the divestiture of Portugal Telecom's holdings in PTM. (C) 2014 Elsevier B.V. All rights reserved.