updated 6/30/2006 1:12:35 PM ET 2006-06-30T17:12:35

Arcelor SA’s shareholders voted down a merger with Russia’s OAO Severstal on Friday, clearing away a major hurdle to Mittal Steel Co.’s bid to take over the company and form a steel titan with nearly 10 percent of global production.

The Luxembourg-based steelmaker is now free of its binding agreement with Severstal and is recommending that shareholders back a 25.4 billion euros ($31.92 billion) offer from Mittal that closes on July 13.

Mittal said the vote marked an “important step in completing the merger,” urging shareholders to tender their shares by the closing date.

Arcelor yielded to Mittal’s third offer on Sunday, ending a bitter five-month takeover battle and jilting Severstal. The long fight was worth it, Chairman Joseph Kinsch told shareholders, because Mittal and the markets had finally recognized Arcelor’s “true value.”

Shareholders holding just under 58 percent of Arcelor followed the company’s recommendation to block the deal, but many also criticized it for failing to keep them in the loop during its battle against Mittal Steel.

The way the company designed the Severstal deal — to go through unless shareholders representing half of Arcelor’s stock voted against it — created a stumbling block for Mittal, which called on shareholders to turn up in record numbers. Kinsch said 60.4 percent of shareholders were present Friday, more than the usual 35 percent who attend.

Arcelor’s board said the Mittal deal was superior in value, governance and business strategy, and set a benchmark for the steel industry. “We have created in five months more than 12 billion euros ($15.26 billion) in value,” Kinsch said.

He denied that the plan to merge with Severstal was merely a tactic to force Mittal Steel Chairman and CEO Lakshmi Mittal to raise his bid, but admitted that it was a catalyst.

“I looked Mr. Mittal in the eyes,” he said, explaining to shareholders why the board had finally dropped its opposition to Mittal as it won concessions on governance and its prized “nonnegotiable” industrial model.

“The battle was long and hard,” he said. “This defense allowed us to come out with the best solution for the group and the most value for shareholders.”

But shareholders chided management on its behavior in recent months — from Chief Executive Guy Dolle calling Mittal’s offer “monkey money” to failing to inform or consult shareholders properly about the offers.

“I was never offensive,” Kinsch told reporters angrily, insisting Luxembourg was open and hospitable to foreigners.

Colette Neuville, the president of the French-based Association for the Defense of Minority Shareholders, told the board it had not treated shareholders as the owners of the company.

Yet she noted that shareholders were the only ones who could get the company out of the “surrealist” situation it found itself in — asking them to block Severstal deal.

Severstal Chairman Alexei Mordashov, who has ruled out a three-way merger with Mittal and Arcelor, will now receive a 140 million euros ($178 million) break-up fee, Kinsch said. Arcelor will continue to keep and even step up its “excellent relations” with Severstal, he said. The two companies run two joint ventures in Russia.

Severstal issued a statement Friday saying Mordashov continued to assess all of his options, that that the company would still explore opportunities to expand its position.

“Mr. Mordashov is encouraged and gratified by all the positive feedback he has received about Severstal during the process from many Arcelor shareholders and stakeholders,” the company said, saying the experience had raised Severstal’s profile and standing.

Kinsch defended Arcelor’s earlier decision to merge with Severstal, but said the deal came “too late” and both a negative market reaction and the low profile of the Russian steelmaker had helped scuttle a deal.

“Arcelor made its best efforts to promote the Severstal project,” he said.

The combined Arcelor-Mittal would dwarf other steelmakers, with a market capitalization of $46 billion and controlling close to 10 percent of world steel production, churning out over 110 million tons of crude steel a year and employing more than 320,000 people.

Under the terms of the deal, Arcelor will name the chief executive of the new company. Kinsch refused to discuss what future Dolle — who once described Mittal’s steel as cheap eau de cologne compared to Arcelor’s fine perfume — would have with the company.

“The future of Guy Dolle is assured in one way or another,” he said. Both he and Lakshmi Mittal had asked Dolle to stay with Arcelor-Mittal, he told reporters.

Dolle was present at the voting Monday but he was unusually quiet, speaking only once to answer a question about the company’s plans to move into China.

Mittal, 55, will be president of the new company, while Kinsch, 73, will be chairman for an undetermined length of time, to be succeeded by Lakshmi Mittal.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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