My thinking for bringing the two together in a group (not necessarily into a single company) is that they can start to use shared experience to highlight and manage problems, then in time start to level the two company's pay rates and T&Cs, start to have staff capable of covering across the group, and rationalising routes to better suit each company. It won't be a short term solution, nor will it be easy, but bringing the two into a group might give them chance to share valuable resources and experience to try and turn both around.Well, it seems we have one proposition to merge the two together, and one to further split up the local services and turn the current two operators into four. That's two radically different solutions, and I'm not sure exactly what problem we're trying to solve. At least we know there is a problem to be solved, but whether either of these proposals are a solution is another matter...
It seems to me that the problem wasn't ever which large company operated the services, it was how they were being operated. With TPE the crewing arrangements are like a house of cards being built in the inter-car connection of a 142 with severe wheel flats, and until that changes to a more resilient system (and of course the industrial relations improve) I can't see things improving regardless of who operates the service or what colour the crew's uniforms are.
Splitting the two down further as suggested will complicate the situation further, and probably result in even more problems as the companies flex against each other. They could of course stay as they are, but frankly they are to all intent and purpose already under the same group. So as they serve the same region and customers, there is probably some sense in formalising this.