Wiseman said it was disappointed that the Office of Fair Trading (OFT) deemed it necessary to refer the takeover to the Competition Commission. The group has now dropped its attempted buyout.
The OFT said it brought the commission in because of concerns over the market power Wiseman might attain.
"This transaction would put the milk business of a rival dairy in and around Glasgow in the hands of Wiseman, the largest supplier of fresh milk in Scotland. As a result, middle ground customers in the area of overlap could face higher milk prices," said Vincent Smith, the OFT's director of competition enforcement.
The decision is a second blow for Wiseman in as many months at the hands of competition authorities. It is also a sign that the OFT is looking to reassert its authority after the Competition Appeals Tribunal (CAT) accused it of bungling an earlier investigation involving Wiseman.
Dairy processor Arla UK and its Scottish subsidiary, Claymore, accused Wiseman of abusing its market position in Scotland by targeting Claymore's middle-ground customers with offers for exclusive deals and 'below-cost' prices.
CAT said it had "serious doubts" about crucial aspects of the OFT's investigation and, while stopping short of ordering a new one, said it hoped "the OFT would take a firm line on such practices in the future".
The OFT's referral of Wiseman to the Competition Commission suggests the body has taken the CAT message on board.
Yet, competition policy is an issue likely to become more and more important in the dairy industry as the trend for consolidation continues apace.
Last week, Dairy Crest announced it would buy Arla's London Foodservice business for £4m. Dairy Crest also snapped up Midlands Co-op Dairies and Starcross Foods in May this year, something expected to produce savings after initial 'swallowing costs'.
One senior industry analyst said that the top two UK dairy processors, Dairy Crest and Arla, did not actually compete on fresh milk supplies in any one particular area of the UK.
But, the possibility of this breeding a concentration of market power has almost become seen as a necessary evil because someone needs to supply the milk.
Britain's National Farmers' Union said in its recent Dairy Vision report that further consolidation was both inevitable and necessary in the dairy industry to ensure it a competitive future.