The proposed takeover of Express Dairies by Arla suffered a setback this week when it was referred to the Competition Commission by the Office of Fair Trading.
The Commission has until September 24 to report to secretary of state for trade and industry Patricia Hewitt.
A spokesman for Arla said the company would co-operate fully with the inquiry but refused to comment further.
DTI competition minister Gerry Sutcliffe has asked the Commission to consider whether the merger would operate against the public interest in the fresh processed milk market.
"The proposed acquisition would lead to a reduction in the number of potential suppliers of fresh milk to the larger supermarkets from four to three nationally, and potentially from three to two in some regions."
The deal would give the merged company, Arla Foods, a 38% leading share of the milk market to the multiples.
Some analysts expressed surprise at the decision to refer the bid but said they still expected the deal to go through smoothly.
Nicola Mallard at Investec said: "To be honest, we thought there was a 50/50 chance of referral, but in reality we do not think there needs to be one.
"The retailers are capable of looking after their own interests.
"We still think the deal will go through, however Express shareholders will have to wait longer for their dividend."