Newhaven, the Scottish creative agency which recently challenged the Scottish Government's procurement policy in court, has given up its independence in a sale to The Leith Agency.

Ken Dixon and Jonathan Shinton, two of four co-founders who broke away from Leith 11 years ago, taking Tennents as their founding client for Newhaven, will leave the merged firm. Leith, Scotland's best-known agency, was itself sold to Cello group in 2005. Its star clients include Irn-Bru, more recently Aldi, the Scottish Government, and quangos including VisitScotland.

Newhaven still has Tennents, and other big names include Historic Scotland and ScottishPower.

The agency launched its legal challenge after it was excluded from the Marketing Services Framework, the Scottish Government's new list of approved suppliers for public sector communications.

Critics say procurement framework criteria, such as the one for IT services, are loaded in favour of the largest companies, discriminating against typical Scottish independents. Newhaven's court action was withdrawn late last month, with neither side commenting.

Leith said Newhaven's client base and key members of staff would join the Leith-based group over the coming months. Last November, Newhaven co-founder and business director Gareth Howells rejoined Leith as creative manager in a surprise move. Mr Howells worked on the Irn Bru and Tennents accounts at Leith in the 1990s.

Mr Dixon said: "Since we launched, Leith has been one of our biggest competitors, yet we have always maintained a friendly rivalry. Combining forces at such a pivotal point in the world of marketing makes sense on a lot of levels."

Richard Marsham, managing partner of The Leith Group, said: "We're excited at the opportunities this merger brings."