The deal was being looked into by the European Commission to gauge its potential impact on the carbonless paper market, which is in decline and beset by structural overcapacity.

The EC approved the deal under the condition that Arjowiggins divest the Reflex carbonless and digital imaging businesses to a third party within 180 days time.

In a statement, M-real said: "After thorough analysis, the parties concluded that the rationale to complete the transaction under the condition was considerably weakened."

Reports have said that if the deal were to go through, Arjowiggins' market share would have dominated more than half of the European market of carbonless paper.

The merged entity would have faced strong competition from three large players, Koehler, Mitsubishi and Torraspapel, as well as a number of local players.

Based in Düren, the mill has been operating since 1857 and has four paper machines, with a joint annual capacity of 100,000 tonnes of speciality paper.

It is dedicated to the production of carbonless and creative papers and employs 470 people and has annual sales of €150m (£104m).

Earlier this week, Arjowiggins' parent group Sequana Capital announced that the paper manufacturer would be "ultimately integrated" into its subsidiary, merchant Antalis.

Arjowiggins was unavailable to comment.