Putting behind it four months of acidic barbs and jibes about the world's largest steel maker Mittal Steel, its rival and second-largest steel maker Arcelor SA has finally got down to holding talks with it. Thus far it had been communicating with Mittal only in writing.

Mittal Steel has confirmed the commencement of talks with Arcelor, the first since it announced its bid to take over the Luxembourg-based Arcelor, on 26 January 2006. It also said that it had no intention of raising its bid for rival Arcelor, any further.

This is seen as Mittal Steel's response to a report in this morning's London-based Financial Times, which had suggested that Mittal may raise its existing bid of about €37.74 a share to €44 a share, bringing it on par with Severstal.

Mittal Steel's detailed post-merger industrial plan, handed over to Arcelor at its Luxembourg headquarters last week, helped kick-start talks between the two rivals. Mittal Steel hopes its blueprint would block Arcelor's proposed merger with Russia's Severstal, saying its bid would be more attractive to shareholders because of Mittal's larger global presence and operations.

So far, Arcelor has rejected Mittal's €21.5-billion acquisition bid. Instead to fend-off Mittal it announce its proposed merger with Severstal last month. Arcelor agreed to buy control of OAO Severstal from Mordashov shortly after Mittal's €23.7-billion bid formally began last month. 'The Severstal deal includes a purchase of Arcelor shares by Mordashov, giving him a total stake of 32 per cent in Arcelor.

Arcelor facing shareholder revolt?

Some of Arcelor shareholders have indicated a ready preference for a merger with Mittal Steel over Severstal. In fact, Arcelor is said to be facing investor revolt from a shareholder group urging investors to vote against the company's proposed buyback.

A larger group of shareholders representing 30 per cent of Arcelor's equity , have signed a letter drafted by Goldman Sachs demanding an extraordinary meeting on the Severstal deal. The meeting could be requisitioned, if it commanded a two-thirds majority.

The Financial Times report also stated that Arcelor may modify the rules of the shareholder vote on Severstal, saying that it may put the proposal for a deal with Severstal to shareholders after Mittal's bid closed on July 5.

The vote, at present, assumes that any shareholder who does not vote is in favour of the deal. According to the report, Arcelor is considering replacing this arrangement with a conventional vote, under which a clear majority of shareholders would need to approve it.

European Union's anti-trust regulators have approved Mittal's bid, on the condition that the combined entity sell-off some of its facilities if the bid succeeds, which in all likelihood would be the Canadian steel maker Dofasco, which Arcelor had grabbed just three days before Mittal Steel announced its bid for the European steel maker.

On the other hand the European authorities yesterday set the deadline for the first-phase inquiry into the merger between Arcelor and Severstal for July 11, a week after Mittal's quest for a minimum 51-per cent stake in Arcelor closes.

Which ever way the battle for Arcelor unfolds, Mordashov says he would keep his stake in Arcelor, even if Mittal Steel ends up with a large stake in the company.