The boards of directors have circulated a proposal to their members and the boards of representatives of both companies.
If the merger is approved by the companies' boards of representatives and by competition authorities, the merger is set to complete at the end of July 2014, they said.
"EGM Walhorn would provide us with an opportunity to grow our milk pool across Europe and the merger would be an important step towards achieving our strategic ambitions, which are focused on growth," Aake Hantoft, chairman of Arla Foods, said.
Arla, which is owned by farmers in Sweden, Denmark, Germany, Belgium, Luxembourg and the UK, is the world's sixth largest dairy company and processed a total of 12.7 billion kilos of milk in 2013.
Arla gets three quarters of its sales in Europe with its biggest rivals including Nestlé (NESN.VX), Danone (DANO.PA) and Lactalis.
EGM Walhorn is owned by farmers in Belgium, Germany and the Netherlands, and produces around 550 million kilograms of milk per year.
(Belga - Reuters)
