The Commission cleared the move under the EU merger regulation, concluding that the transaction "would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it".
The Commission said that the horizontal overlaps between the activities of both entities were very limited, and that the combined entity would continue to face strong, effective competition from other companies active in the sector.
This leaves Arla's subsidiary in Finland to merge with the company to produce the Arla Ingman group. The deal gives Arla three years to buy up the remaining shares in Ingman, a Finnish supplier of dairy products.
Arla Ingman will have annual sales of around €300m and employ around 500 people.
The deal is another example of larger European dairy firms increasing their reach in an attempt to protect themselves from pressure from costs, retailers and lower market support.
Hans-Ake Hammarstrom, Arla's head of Nordic markets, recently pointed out that international consolidation of the dairy industry is steadily continuing and that new types of partnership are needed in order to meet consumer demand for broader ranges and greater choice.
This assertion is backed up by a report published last year by Leatherhead International (LFI). The fourth edition of Key Players in the Global Dairy Industry, which profiled 34 leading companies, found that 22 completed merger and acquisition deals in 2003, 19 in 2004, 16 in 2005 and 7 to date in 2006.
Most of these deals involved cross-border purchases. Indeed, internationalisation remains a key focus for most of the world's leading dairy firms.
Nestle remains at the head of the global dairy rankings, with sales of $18.7bn in 2005, compared with $10.5bn for its closest rival, America s Dean Foods. According to Leatherhead International, this is well ahead of the next three businesses: Danone ($8.94bn), Dairy Farmers of America ($8.91bn) and Fonterra ($8.69bn).
Other companies with dairy turnover of over $5bn include Lactalis, Arla Foods, Unilever, Kraft Foods and Friesland Foods.
In fact, Arla Foods group is Europe's second largest dairy company. Arla Foods was first formed in the spring of 2000 following a merger between the Danish MD Foods and the Swedish Arla.
The company is owned by approximately 10,600 milk producers in Denmark and Sweden.