M&a activity can be conducted in order to lower a firm's cost of capital. This can be done either by lowering the firm's total risk through diversification, by absorbing a company in a lower-risk business than the new parent company, or by using the M&a activity as an opportunity for arbitrage, taking advantage of disequilibrium between currencies and interest rates in two different nations. Corporate organization and ownership issues can stimulate merger & acquisition activity as well. In some cases, the activity is a reorganization within the company, conducted for strategic reasons and often tied to tax consequences. In other cases, firms may combine assets in a manner that allows for one or both of the firms to improve its strategic position in specific products or markets. Organization and ownership can have a negative impact on the success of a merger or acquisition, however. Issues regarding control, culture or mission conflict can arise post-merger that can reduce the ability of the firm to gain synergies or otherwise meet the objectives of the merger activity.

Litigation risk can have an impact on M&a activity as well. Firms can initiate a merger in part to offset litigation risk that they face -- Anheuser Busch for decades sought to settle its long-running trademark dispute with the Czech government by purchasing the Budweiser Budvar brewery with whom it was battling from the government. Mergers and acquisitions also create new opportunities for litigation, ranging from antitrust suits to disputes surrounding cost-cutting measures post-merger. These litigation costs could ultimately result in a dramatic increase in the cost of the merger. Firms engaging in M&a activity need to consider the potential litigation risks created by the merger prior to engaging in such activity.

Merger & acquisition activity can also create legal compliance issues, including antitrust issues. The merger of two large...

And EU at the very least. Such transactions may also be spurred by compliance issues, for example a company may be compelled to spin off part of a business in order to meet with legal compliance. In addition to antitrust issues, firms may face legal compliance issues with regards to their financial position. Firms with debt must often face covenants, ratio restrictions and credit limits. The shape and form of a merger or acquisition can be affected by the impact that the transaction would have on the credit terms faced by one or both of the parties.
There are a wide range of considerations that must be taken into account when first making the decision to enter into a merger or acquisition and then subsequently when deciding how to shape such a transactions. Firms must consider carefully not only their motivations for the transaction but must also take in account the ways in which these considerations will impact the firm post-merger as well.

Works Cited:

Tehranian, H. (2006). Performance changes around bank mergers: Revenue enhancements vs. cost reductions. Journal of Money, Credit and Banking. Retrieved March 23, 2010 from http://www.allbusiness.com/sector-52-finance-insurance/credit-intermediation/1183147-1.html

Dounis, N. (2008). The auditor's role in mergers and acquisitions: Companies often underestimate the importance of risk management during the M&a process. Internal Auditor. Retrieved March 23, 2010 from http://findarticles.com/p/articles/mi_m4153/is_3_64/ai_n27504379/

Gaughan, P. (2007). Mergers, acquisitions and corporate restructurings. Hoboken, NJ: Wiley.

Croson, R., Gomes, a., McGinn, K. & Noth, M. (2004). Mergers and acquisitions: An experimental analysis of synergies, externalities and dynamics. Review of Finance. Vol. 8, pp. 481-514.