Arcelor to Merge with Severstal; Transaction Will Create the World's Steel Champion and the Most Profitable Steel Company; Arcelor Valued at EUR44 Per Share

Business Wire, May 26, 2006

LUXEMBOURG & MOSCOW -- Arcelor (ISIN:LU0140205948) (Pink Sheets:ARLOF) (Paris:LOR), the world's number one steel company, and Severstal, the largest Russian steel company, announced today that they have agreed to merge, creating the world's steel champion and most profitable steel company. The combined company will rank amongst the world's most competitive steelmaking and resource assets in both developed and emerging markets, and will be the only one with leading positions in Brazil and Russia.

Transaction highlights

The transaction values Arcelor at EUR44 per share, excluding EUR 1.85 dividend, representing a premium of 100% over Arcelor's closing price on January 26, 2006, the day before Mittal Steel announced its hostile offer, and 36.6% over Arcelor's closing price ex-dividend on May 25, 2006.

In addition, up to EUR7.6 billion cash will be returned to shareholders, including via dividends and OPRA (self tender).

The combination of Arcelor and Severstal will be the Number 1 steel company in the world with EUR46 billion in sales, EUR9 billion in EBITDA and 70 million tonnes of production, based on each company's pro forma 2005 results.

Under the definitive agreements signed by the parties,

--Alexey A. Mordashov, Severstal's controlling shareholder, will contribute all of his economic interests in Severstal's steel business (including Severstal North America), as well as Severstal-Resource (iron ore and coal assets) and his ownership interest in Italian steelmaker Lucchini, to Arcelor.

--Mr. Mordashov will also contribute a cash payment of EUR1.25 billion to Arcelor in exchange for shares at a price of EUR44 per share.

--In total, Mr. Mordashov will receive 295 million newly issued Arcelor shares at a price of EUR44 per share, representing approximately 32% of the enlarged Arcelor.

--Arcelor's existing shareholders will retain approximately 68% of the enlarged Arcelor.

Creating a Global Steel Champion

The combined entity will consolidate Arcelor's technology leadership and experience and will be the undisputed world leader in all product segments including flat carbon steel, long carbon steel and distribution. The combination will strengthen Arcelor's Number 1 global position in the automotive steel segment (with Number 1 positions worldwide with a global market share over 20% - more than double that of its nearest competitor).

The combined company will offer an exceptional, balanced geographic presence with leadership both in developed and emerging markets and in particular will:

--Be Number 1 in Europe, Russia and South America

--Take advantage of its leading position in North America

--Further grow strong industrial presence and partnerships globally

With geographically balanced contributions, over 40% of 2005 pro forma EBITDA generated in Brazil and Russia.

The two companies have a longstanding relationship and know each other well from their Russian joint-ventures which include the Severgal galvanizing plant in Cherepovets, wire drawing operations in Orel and various industrial cooperation projects.

The combination of high value-added products, low-cost operations and ownership of key raw materials will result in a combined company with one of the highest profit margins in the industry, generating a 2005 pro forma EBITDA per tonne of EUR130. The combined company will have outstanding resilience through the steel cycle.

Compelling Value Creation for Shareholders

--Targeted normalized EBITDA of EUR10 billion

--Accretive on earnings as early as 2006, before synergies

--Synergies of EUR590 million and potentially more from capital expenditures

--ROCE above Arcelor's current 15% target

--Strong balance sheet allowing financial flexibility for growth and consolidation

--Up to EUR7.6 billion cash to be returned to shareholders including dividends and OPRA (self tender)

Continuation of Arcelor's Best Practice Corporate Governance Model

--1 share, 1 vote

--All board members are non-executive

--18 board members, at least 9 being independent

--3 board committees (Audit, Nomination and Remuneration, Strategy)

--All Audit Committee Members independent

--New Strategic Committee to be chaired by Mr. Mordashov

--Independent Chairman of the Nomination and Remuneration Committee

--Mr. Joseph Kinsch and Mr. Guy Dolle will continue to serve as Arcelor's Chairman of the Board of Directors and Chief Executive Officer, respectively, and Arcelor's executive management will remain in place, supplemented by Severstal executives.

--Mr. Mordashov will become non-executive President of the Arcelor Board of Directors. He will have the right to nominate 6 out of 18 directors on the Arcelor Board of Directors. Mr. Mordashov has agreed to vote his shares in accordance with the recommendations of the Board of Directors. In addition, he has committed to a standstill on Arcelor shares for 4 years and to a lock-up for 5 years.

The transaction is subject to antitrust approvals, which the parties expect will be obtained shortly. The transaction is expected to close in July 2006, subject to obtaining regulatory approvals.