The state companies operating Lithuania's power and gas grids will merge to form a new company starting on January 1, Lesto and Lietuvos Dujos announced in a statement on November 2.

The announcement of the official launch of Energijos Skirstymo Operatorius (ESO) confirms the merger after electricity grid operator company Lesto and gas distributor Lietuvos Dujos reached an agreement in September. The merger is part of a drive by Vilnius to improve effciency in state owned companies. It hopes to see annual savings of €3.6mn via the merger, which comes under the auspices of state-owned utility Lietuvos Energija.

The deal is still to be approved by shareholders of Lesto and Lietuvos Dujos, according to the market filling published by the Vilnius Stock Exchange. ESO will take over all fixed and current assets and liabilities of the pair. The merged company's assets will be worth an estimated €1bn. 

Lesto and Lietuvos Dujos shares will be exchanged for ESO shares, the statement reads. The exchange ratio of shares has been calculated based on the average weighted market price of the shares of each company in the first half of 2015, and the book value of net assets, Lietuvos Energija said in September, although it did not give the actual ratios. ESO will remain listed on the Lithuanian stock exchange following the merger.

“The reorganization of the electricity and gas distribution companies will allow reducing administrative costs and at the same time offer the lowest possible service prices to our customers. More efficient investments in the networks, increasing [their] reliability and decreasing costs of operation,” Lietuvos Energija CEO Dalius Misiunas said in September.