The creation of a new £1.1bn turnover organisation has moved a step closer after NHS London ruled an acute trust could merge with two smaller hospitals.

Barts and the London Trust has been chosen as the favoured party to merge with Newham University Hospital Trust and Whipps Cross University Hospital Trust.

In choosing Barts, NHS London’s capital investment committee rejected an application to take over the trusts by Homerton University Hospitals Foundation Trust. Barts will now produce an outline business case.

A timetable submitted by Barts to the strategic health authority in January anticipated it would obtain authorisation as a new trust this October and gain foundation status in January 2014, three months before the deadline to become a foundation trust.

Barts and the London has the biggest private finance initiative scheme in the health service, with a capital value of £1bn against the trust’s annual turnover of £650m. It is scheduled to start paying £96m in annual charges for the scheme from 2013-14.

The briefing submitted to NHS London said there was a “significant potential for disposals, including land sales within both the Whipps Cross and Barts and the London estates”.