The Competition and Markets Authority (CMA) has referred the anticipated joint venture between ForFarmers and 2 Agriculture for an in-depth investigation.
The UK's competition watchdog had launched its initial investigation into the potential merger in autumn last year.
Netherlands-based ForFarmers and 2 Agriculture, owned by UK company Boparan, both manufacture and supply chicken and other types of poultry feed in the UK.
The companies are planning to combine their animal feed milling operations in a joint venture. Between them, the firms operate 19 mills across the UK.
Following its first investigation, the CMA found that the deal raised competition concerns in four local areas across East Anglia, north-western England and North Wales.
The watchdog added that the deal could lead to higher prices for poultry feed, lower quality feed or worse quality of service.
Announcing a further move, the CMA said it had referred the anticipated joint venture for an in-depth investigation.
"It is or may be the case that this merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom," the CMA said.
The text of this decision will be published in due course, the watchdog added, with a statutory deadline set for 25 June 2023.
Sorcha O’Carroll, senior director of mergers at the CMA, said: "Feed is the biggest expense faced by farmers when rearing chicken, the UK’s favourite meat.
"With food prices already increasing and the wider cost of living crisis, it is vital that we don’t allow a reduction in competition between poultry feed suppliers, which could make this situation worse - both for farmers and shoppers."