Synergy Motive

Several academicians and researched have written literature on the three major motives for takeovers: the synergy motive, the agency motive and the hubris motive. Berkovitch and Narayanan (1993) define the synergy motive as a takeover that takes place because of economic gains that result by merging the resources of the two firms. Managers of targets and acquirers will agree to a takeover if it the potential combination is forecasted to bring profits to both sets of shareholders, that is, the main motive for the takeover is to maximize shareholder value. There are several reasons for a synergistic takeover- an exogenous change in supply and/or demand, technological innovations, or purposeful investments by the bidding firm. The value created by the combination may result from more efficient management, economies of scale, improved production techniques, the combination of complementary resources, the redeployment of assets to more profitable uses, the exploitation of market power (Bradley et al, 1987).

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