Arcelor directors have accepted a partnership deal with Mittal Steel that has sent shockwaves through the industry.
The mergered company would be called "Arcelor-Mittal" and would be owned 50.6 percent by Arcelor shareholders and 49.4 percent by Mittal.
A statement said the Arcelor board considered that in the long term the European steelmaker would absorb Mittal Steel but there would be no job losses at this stage.
Arcelor-Mittal will be traded on the New York, Paris, Madrid, Amsterdam, Brussels and Luxembourg stock exchanges.
"We came to the conclusion that Mittal's offer was a better offer than the Severstal proposal," Arcelor chairman Joseph Kinsch said after a nine-hour Arcelor board meeting.
Mittal said: "We have paid a fair price for what is a very good business ... The two companies have always been focused on consolidation as a means of driving creation."
Arcelor directors had also considered an alliance proposal from Russian steel producer Severstal.
But Mr Kinsch said the board gave the nod to Mittal after it improved its offer by 10 percent.
Severstal said Sunday it was "very surprised" by the announcement. "We have an agreement to merge that ties us to the board of directors of Arcelor ... We are very surprised that the board did not invite us to discuss our revised offer, and did not give use the opportunity to respond, as we had requested," the company said in a statement.
Rise of Mittal
Luxembourg Economy Minister, Jeannot Krecke, said directors would now recommend that Arcelor shareholders, who are to gather June 30, accept the Mittal offer.
"The (Arcelor) board made a recommendation in favor of Mittal Steel," Mr Krecke said, adding that the headquarters of the merged company would remain in Luxembourg, where Arcelor is based and which has a 5.6 percent stake in the group.
An Arcelor-Mittal marriage would create a global steel-producing giant, with 320,000 employees, controlling about 10 percent of the market and turning out 116 million tonnes of steel a year, three times that of its nearest rival.
The partnership deal amounts to a stunning personal victory for the Mittal founder and chairman, 55-year-old Lakshmi Mittal, who in the past five months has confronted bitter rejection as well as some stinging comments from Arcelor executives who were fiercely hostile to the proposal at the outset.
Mittal Steel, which has risen from modest beginnings in India 30 years ago and has built its success on carefully-judged acquisitions, is mainly active in eastern Europe and North America while Arcelor concentrates on western Europe and Latin America.
The Walloon government in French-speaking Belgium, which holds a 2.4 percent stake in Arcelor, quickly welcomed the agreement.
India's Trade Minister Kamal Nath also hailed reports of an agreement.