The deal would have created a company with control over 90% of the market for paid, daily fantasy sports contests, government officials said.
The firms said the deal would lead to greater investment, providing benefits for consumers.
They said they would now look to grow independently.
FanDuel started in Scotland in 2009 and is now based in New York. It is number two in the US for paid daily fantasy sports contests behind DraftKings, which started in Boston in 2012.