Friday, May 26 2006 12:32 Hrs (IST) - World Time -

Paris: European steelmaker Arcelor announced today (May 26, 2006) it was merging with Russian company Severstal, in an operation aimed at thwarting a hostile takeover bid by rival Mittal Steel.

The merger, due to be finalised at the end of July, will create the world's biggest steelmaker with turnover of 59 billion dollars, Arcelor said in a statement.

"Severstal's president and owner, Alexey Mordashov, willcontribute all of his economic interests in Severstals steel business as well as Severstal-Resource, which holds iron ore and coal assets, and his stake in Italian steelmaker Lucchini," it said.

In addition, he will contribute 1.25 billion euros in cash to Arcelor.

In return, Mordashov will receive about 32 per cent of the new merged group and the position of non-executive president of the Arcelor board of directors where chairman Guy Dolle will remain.

Mittal, the world's largest steel maker, had voiced concerns late yesterday about attempts by Arcelor to ally itself with the Russian company.

Mittal has offered 25.8 billion euros (32.9 billion dollars) or 37.74 euros per Arcelor share to buy the company.

Arcelor and Severstal set up a joint venture in 2002 and opened a plant in Russia in April.

For several weeks the media has speculated that Arcelorwas seeking a 'white knight' to head off Mittal's bid, which the Arcelor management has rejected.