The combined company would surpass Mittal in terms of revenue and production. Dolle said the "industrial logic" of the Severstal deal made more sense because it concentrated more on value than on volume.
Mittal, though, criticized it as a "second-class combination," saying Arcelor's board seemed to be manipulating shareholders to its own ends.
Arcelor fought hard against Mittal's bid, complaining about the company's governance, which is heavily weighted toward the Mittal family. Mittal offered last week to raise its bid to Ђ25.8 billion (US$33 billion).
Mittal's offer remains open and in the hands of shareholders. At least half must sell to Mittal for the takeover bid to succeed.
Under the deal announced Friday, Severstal's controlling shareholder Alexei Mordashov will pay Arcelor Ђ1.25 billion (US$1.59 billion) in cash and give it his stake in all of Severstal's steel assets and Italian steelmaker Lucchini SpA.
In exchange, Mordashov will own 32 percent of the enlarged Arcelor group. Existing shareholders, who will own the remaining 68 percent, can vote on the deal June 28.
Arcelor shares fell 3 percent to Ђ33.05 (US$42.21), while Mittal shares rose 2 percent to Ђ25.00 (US$31.92). Severstal shares were up 10 percent at US$13.35 (Ђ10.47) on RTS, Russia's benchmark index, the AP reports.
Arcelor Chief Executive Guy Dolle said the deal - worth Ђ44 (US$56.12) per share, excluding a planned Ђ1.85 (US$2.36) per share dividend - represents the "real value" of the company. He told French business weekly Investir that Arcelor could pay as much as Ђ50 per share to buy back equity. Mittal has offered Ђ37.74 (US$48.19) a share.
Arcelor said the transaction would go through by the end of July unless shareholders vote against it. Dolle expressed confidence that they would approve it and said the vote showed Arcelor's commitment to corporate governance.
The United States and NATO are conducting provocative activities both in airspace and waters of the Black Sea, Russian Defense Minister Sergei Shoygu said