Blends of polybutyleneterephthalate (PBT) with ethene-ethyl acrylate copolymer (E-EA) and ethene-methyl acrylate-glycidyl methacrylate terpolymer (E-MA-GMA) were investigated. E-MA-GMA terpolymers containing various concentrations of epoxide functions were synthesized in a preliminary step by melt modification of commercial E-MA-GMA with benzoic acid molecules. The blends were analyzed by several techniques including electron microscopy and separation experiments. PBT/E-EA (80/20 w/w) blends presented the general features of uncompatibilized polymer blends, such as a lack of interfacial adhesion and a relatively coarse unstabilized morphology. No evidence of transesterification reaction was found to occur according to the used blending conditions. In contrast, blends containing both virgin and modified E-MA-GMA terpolymers exhibited a very complex behavior. Fractionation experiments demonstrated that two competitive reactions take place during the melt blending viz. (1) compatibilization due to interfacial reactions between PET chains end and terpolymer epoxide groups, resulting in the formation of E-MA-GMA/PBT graft copolymer and (2) rapid crosslinking of the rubber phase due to the simultaneous presence of hydroxyl and epoxide groups on E-MA-CMA chains. This competition between compatibilization and crosslinking is clearly dependent on the type of the terpolymer, since the modified E-MA-GMA already contains hydroxyl groups before mixing but for the pure E-MA-GMA hydroxyl groups are formed as a result of the in situ compatibilization reaction with PET. Rubber phase crosslinking through double reaction with PET chain can not be excluded but is expected to occur only to a smaller extent. All these phenomena result in a very complex processing/morphology interrelationships and probably also affects the final blend properties. (C) 2000 Elsevier Science Ltd. All rights reserved.