Bendigo Bank will merge with Adelaide Bank in a union bound to throw up more challenges, and job cuts, than either side is letting on.Under the plan, announced yesterday, Bendigo will offer 1.075 of its own shares for each share in Adelaide Bank. There is no cash alternative. Shareholders in Adelaide Bank, but not Bendigo Bank, get to vote on the offer in November this year, with the merger taking effect late in the year.The new entity will have funds under management of around $43 billion and 1.3 million customers.The two banks forecast savings of $65 million a year, or 39 per cent of the 2007 non-interest cost base of Adelaide.Neither bank would forecast the likely net revenue gains. The two banks are talking about lower funding costs in the event of an improvement in their current credit ratings, which are both BBB+.The merger addresses strategic weaknesses that are most acute in the case of Adelaide Bank.Both once building societies that converted to bank status in the 1990s, their strategic paths diverged. Adelaide chased profit growth as a wholesaler and specialist lender. The profitability of the bank's South Australian retail business and its mortgage wholesaling business have, however, felt the heat, with the bank's margin hammered down over five years to little better than one per cent.Bendigo has flourished in retail and very small business banking markets but as a result relied on a narrow product set - albeit one that allowed the bank to report interest margins of near three per cent.Talk of a merger between the two banks, and of either bank with other regional banks, has been on the agenda of each board for several years. The catalyst for the timing of this plan was Bank of Queensland's unsolicited and public offer for Bendigo Bank back in March, which the board of Bendigo declined within weeks.The line pushed by Adelaide Bank managing director Jamie McPhee at yesterday's briefing was that job losses "are not going to be significant" and no doubt the two management teams are counting on attrition to whittle down the combined head count of more than 4000.Most of the work that Adelaide Bank's specialist business units undertake is likely to be secure. The banks have several mortgage processing units to consolidate and the current costs and Adelaide's experience as an outsourced supplier to other lenders would favour its centre for this work.One difference in the cost structures of the two banks is that Adelaide's staff expenses are 60 per cent of 2007 operating costs while Bendigo's are 50 per cent.Bendigo has just finished work on a new headquarters building in its home city, including investment in a new data centre, and that city, rather than Adelaide, may end up as the new entity's technology hub.