We utilize a quasi-experimental setting that exogenously changes costs to acquire the targeted firm, which allows us to examine the relationship between the costs of acquisitions and decisions to pursue alliances. We find that firms with increased acquisition costs, due to the increased takeover protection, are more likely to experience alliances than their comparison group and that equity alliances are more likely to be adopted to substitute for acquisitions than non-equity alliances. Our post-hoc analyses also reveal that when the cost of acquisition increases, acquisitions indeed become less likely and that the sequential investment relationship of alliances and acquisitions becomes less likely. Finally, we show that following an increase in takeover protection, alliance performance decreases and acquisition premium increases.