According to the two companies, should the proposal be approved by the two companies' boards of representatives and relevant authorities in the EU, the merger is expected to be completed at the end of July this year.
The proposal has been circulated among members and the boards of representatives at both companies.
Aake Hantoft, chairman of Arla Foods, 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."
Arla Foods, which is the world's sixth largest dairy company and jointly owned by farmers in Sweden, Denmark, Germany, Belgium, Luxembourg and the UK, processed a total of 12.7 million tonnes of milk in 2013. Three quarters of its sales was accounted for by Europe, with Nestlé, Danone and Lactalis being its biggest regional competitors.
EGM Walhorn, jointly owned by farmers in Belgium, Germany and the Netherlands, produces about 550,000 tonnes of milk per year.