What is a potential motive for a firm to pursue a takeover?

A firm may pursue a takeover for several reasons, and one prevalent motive is achieving economies of scale through cost reduction. When companies merge or acquire others, they can consolidate operations, leading to reduced costs per unit due to increased production levels. This could be realized through the sharing of resources, such as facilities or supply chains, which helps to lower operational costs significantly. The synergy expected from such a transaction often is one of the main driving forces behind mergers and acquisitions.

Additionally, achieving economies of scale can enhance competitive advantages, allowing the firm to operate more efficiently than its competitors. This often enables firms not only to reduce prices but also to increase profit margins, which can be beneficial for shareholders. Hence, while the takeover could have additional motivations such as expanding market share or pursuing long-term strategic goals, cost reduction through economies of scale stands out as a primary reason.