What is a tax motive for engaging in takeovers?

Utilizing existing tax losses is a strategic motivation for companies engaging in takeovers. When a company has accumulated tax losses that can be applied to offset taxable income, acquiring another company can provide an opportunity to leverage those losses. By merging with or acquiring a target company that has profitable operations, the acquirer can apply its tax losses to the combined income, thereby reducing the overall tax liability of the new entity. This is particularly advantageous as it can enhance cash flow and create value for shareholders while also making the acquisition financially appealing.

The other options do not align closely with tax motivations. Raising employee salaries does not directly relate to tax strategy, as it's more about compensation structure and employee satisfaction. Decreasing company size typically might not have a direct tax advantage, as tax implications usually arise from growth strategies rather than downsizing. Distributing cash to shareholders often pertains to profit-sharing rather than tax strategies whereas the motive behind utilizing tax losses is more directly linked to optimizing the company's overall tax situation through an acquisition.