May 27, 2006 — Arcelor and Severstal have agreed to merge, forming a combined company that will rank amongst the world's most competitive steelmaking and resource assets in both developed and emerging markets. The new organization will be the only steel producer with leading positions in Brazil and Russia.

The transaction values Arcelor at EUR44 per share, excluding a EUR 1.85 dividend, which represents a premium of 100% over Arcelor’s closing price on January 26, 2006, the day before Mittal Steel announced its hostile offer, and a 36.6% premium 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).

Based on each company’s pro forma 2005 results, the combination of Arcelor and Severstal will result in a new company with EUR 46 billion in sales, EUR 9 billion in EBITDA and 70 million tonnes of production.

Controlling Interest—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. He 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.

Strengths for the New Organization—The combined entity will consolidate Arcelor’s technology leadership and experience, strengthening Arcelor’s global position in the automotive steel segment (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:

The newly combined organization will take advantage of current leadership positions in Europe, Russia, South America and North America. The new group intends to further expand on its strong industrial presence and partnerships. With geographically balanced contributions, over 40% of the two companies’ 2005 pro forma EBITDA was 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 Orël 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.

Arcelor projects that the transaction will be accretive on earnings as early as 2006, before synergies. Further, the group expects synergies of EUR590 million and potentially more from capital expenditures. The groups says that up to EUR7.6 billion cash to be returned to shareholders including dividends and OPRA (self tender).

Corporate Governance—The new organization will continue with Arcelor’s Best Practice Corporate Governance Model, which is based on the premise of one vote per one share. The model further stipulates that there will be 18 board members, all of whom will be non-executive and at least half of whom will be independent. The board will have three committees — Audit, Nomination and Remuneration, and Strategy. All Audit Committee members are to be independent, and the new Strategic Committee will be chaired by Mr. Mordashov. The Nomination and Remuneration Committee will have an independent Chairman.

Following the merger, Mr. Joseph Kinsch and Mr. Guy Dollé 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.

Arcelor shareholders will have the opportunity to express their choice about this transaction at a shareholders meeting. Unless more than 50% of the currently outstanding shares oppose this transaction, the transaction will go forward and is expected to be finalized by the end of July.

Mr. Joseph Kinsch, Chairman of Arcelor’s Board of Directors, said: “Arcelor’s Board of Directors believes that the merger with Severstal fully recognizes the value inherent in Arcelor, and offers Arcelor shareholders superior industrial logic, greater value and the highest standards of corporate governance compared to Mittal Steel’s offer. Therefore we believe this deal is in the best interests of Arcelor’s shareholders.

Mr. Alexey A. Mordashov, Severstal’s Chairman and controlling shareholder, said: “I am delighted about our merger with Arcelor. Arcelor is a superb company with highly successful management, world-class assets that produces extremely high quality products. Severstal’s top management team, highly profitable assets and low cost operations, together with Arcelor’s attributes, will position the combined company to lead the way in the consolidation of the steel industry”.

Mr. Guy Dollé, CEO of Arcelor said: “The merger with Severstal represents a breakthrough transaction for Arcelor that positions the combined company in the forefront of the international steel industry. The transaction is consistent with Arcelor’s strategy of value before volume, and was negotiated in the best interest of both groups. The merger is consistent with Arcelor’s growth strategy in the BRIC markets. We are creating a truly extraordinary growth platform for investors and a much better choice for our shareholders. We are confident that they will support the Arcelor way”. He added: “Long-lasting relationships, existing successful partnerships and a friendly approach guarantee limited risks of execution and therefore increase the chances to make this merger a massive success”.

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.

Arcelor holds leadership positions in its main markets: automotive, construction, household appliances and packaging as well as general industry. The company intends to further expand internationally in order to capture the growth potential of developing economies and offer technologically advanced steel solutions to its global customers. In 2006, Arcelor employs 110,000 associates in over 60 countries. The company places its commitment to sustainable development at the heart of its strategy and ambitions to be a benchmark for economic performance, labor relations and social responsibility.

Severstal is the largest Russian steel producer, with 2005 annual steel production of 17.1 million tonnes. It is the second largest flat steel producer in Russia with annual steel production of 10.9 million tonnes. In addition, Severstal owns Severstal North America, the fifth-largest integrated steelmaker in the U.S. with 2005 production of 2.7 million tonnes, and Lucchini, Italy’s second largest steel group with 2005 production of 3.5 million tonnes. Severstal is one of the world’s lowest cost and most profitable steel producers, with 2005 EBITDA per tonne of approximately 150 euros per tonne.

Severstal-Resource owns 70 years of iron ore reserves and 84 years of coal reserves. 2005 revenue and EBITDA were approximately EUR1.12 billion and EUR506 million, respectively. Severstal-Resource produces coking coal, thermal coal, iron ore pellets and iron ore concentrate.