Arcelor's board supports the deal and it is expected to be finalized at the end of July, although there is some opposition from shareholders and investors.
Severstal, which is valued at $16.6 billion, is one of several Russian companies seeking a new international role and also supported by the Kremlin.
Meet The New Boss
Until now, Aleksei Mordashov was largely unknown in the West. In his forties, a billionaire son of steel workers, he has headed Severstal since 1996.
If the merger takes place, Mordashov will acquire more than one-third of what would be the biggest steelmaker in the world. In return, Arcelor will buy the nearly 90 percent stake in Severstal owned by Mordashov. The move would most likely prevent a hostile bid for Arcelor by Rotterdam-based Mittal Steel.
As the non-executive president of the Arcelor board, Mordashov would have the right to nominate six of the total of 18 directors.
Arcelor's Chairman and CEO Guy Dolle portrays the deal as a consolidation of the steel industry in a globalized world.
"We, Severstal and Arcelor, have both shown that we are much stronger together than apart," he said. "We have shown that together Arcelor and Severstal we could become even stronger, to give an answer to the challenge, challenge of globalization."
Ambitious Plans
Mordashov told Reuters news agency that the new company has ambitious plans to carry out further mergers and takeovers.
It's the latest example of what some analysts are saying is Russia seeking to expand its business influence abroad.
And it's not only Mordashov who is purchasing stakes of Western steel companies. According to the "Financial Times" on May 30, another Russian oligarch, Roman Abramovich, is thinking along the same lines.
Abramovich, Russia's richest man and owner of the British Chelsea soccer club, is due to buy a 40 percent stake in Russia's largest steel producer Evraz. Reports say the purchase could hasten talks between Evraz and Corus, the Anglo-Dutch steelmaker.
And, earlier this year, there was much speculation about Russian energy giant Gazprom bidding for Centrica, the United Kingdom's largest utility company.
Masha Lipman, editor in chief of the "Pro et Contra" journal at the Carnegie Moscow Center, an independent Russian think tank, says that Russian business is becoming more active globally.
"It is important because it indicates the growing Russian influence in the world as a whole. It is a big, gigantic deal. The biggest steel companies in the world are involved in it and the fact that Aleksei Mordashov is buying stocks of this company and, by the way he has already announced he would increase his stake [in Arcelor], indicates that Russian business is starting to take a serious place in the world economy," Lipman says.
Kremlin Ties
The deal has reportedly received the Kremlin's blessing. Russian Prime Minister Mikhail Fradkov said after meeting with President Vladimir Putin on May 29 that he hopes the proposed merger will be complete by July 20. The Kremlin has previously poured cold water on proposed deals between Russian and international companies.
"The Wall Street Journal Europe" reported on May 29 that the merger "shows the rewards unquestioned loyalty to the Kremlin can bring." The paper reminds that Mordashov played an important role in Putin's 2004 reelection campaign.
Mordashov (right) shakes hands with Arcelor Chairman Josef Kinsch in Moscow on May 27 (epa)
But Mordashov, apparently, is not the typical oligarch. She says that he has not been involved in scandal, nor has he pursued the sort of political line that many believe landed former Yukos CEO Mikhail Khodorkovsky in jail.
Western investors and many Arcelor shareholders are wary of the Kremlin's grip on Russian business.
David Roberts, the director of trading for Prague-based Central Europe at DR Steel Ltd, says the future deal involves certain political and economic risks.
"I don't think it is in the best interest of shareholders in Arcelor," Roberts said. "I think they are giving basic control of one-third of an enlarged company to a company, which has close ties to the Russian government. So they [Severstal] can change their policy very quickly [in the future]."
Arcelor shareholders have raised questions about the true value of Severstal's assets and the company's standards of corporate governance.
And according to the London-based "Financial Times," U.S. investment bank Goldman Sachs is attempting to rally shareholder resistance to the deal by circulating a critical draft letter.
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