Juhayna is a among Egypt's leading manufacturers of UHT milk, yogurt and juice, but has a "very limited production" of butter, cheese and cream - a gap Arla plans to fill with its own European products.
"It's a very good match for both parties," said Rasmus Malmbek Kjeldsen, senior director for the Middle East and Africa, Arla Foods. "Juhayna has a nationwide distribution network, and we are not competing within the same product categories."
"Together we now get a broader product portfolio, which strengthens the business of both parties," he said.
Juhayna will control a 51% stake in the joint venture, ArJu Food Industries, but Arla will manage the business.
The sale of Arla products through ArJu Food Industries is scheduled to begin in October 2015.
Local production is on the cards, and Arla expects sales in Egypt to exceed €90m (US$100m) within five years.
"All corners of Egypt"
Juhayna is the largest player in the Egyptian dairy sector, which is forecast by Euromonitor to grow to US$4.77bn (€4.3bn) by 2019.
According to Arla, purchasing power in the country is higher than ever, and Egyptian consumers are increasingly swapping homemade dairy for processed and packaged products.
With a limited number of supermarket chains, Egypt's retail structure is complicated.
But with the access to Juhayna's "neatly-masked distribution net", ArJu Food Industries will "be able to reach all corners of Egypt," said Kjeldsen.
"Today our business is merely scraping the surface, but now we will be able to drastically expand our distribution to reach millions of new consumers," he said.
Arla's Egyptian ambitions have been evident for some time.
In September 2014, it lodged a non-binding E£65.00 (US$8.51, €7.65) per share bid to acquire Arab Dairy, an Egyptian cheese maker best known for its Panda brand.
After a period of due diligence, when it assessed the "more sensitive aspects" of the Cairo-based business, Arla decided not to make a formal bid for Arab Dairy.
Pioneers Holding went on to beat Al Nour for Dairy Industries, a Egyptian subsidiary of French dairy giant Lactalis, in the race to acquire Arab Dairy.