The world's second-largest steel maker, which had signed a merger agreement with Russia's Severstal to ward off Mittal Steel's take-over bid, today said that that it has opened fresh talks with Mittal.

On Monday Arcelor had rejected Mittal's latest offer (See: Arcelor rejects revised Mittal bid; to negotiate for higher bid).

An Arcelor spokesman said there was a meeting with Mittal on Tuesday and more meetings are expected, but he declined to divulge details about the talks. Mittal too declined to comment.

Shareholder fears have been rising over the past few days over the ultimate control of Arcelor. They point out the €13-billion ($ 16.41 billion) Severstal deal lacked transparency and was hastily drawn up. They also fear Russian steel tycoon Alexei Mordashov gaining full control of the merged company.

Meanwhile, Mittal Steel, which had revised the offer price to $26.8 billion, has rejected Arcelor's demand for further revision of the offer price, saying it could make improvements only to the corporate governance component of the bid.

Severstal head Mordashov, meanwhile, defended the Aecelor deal saying he would not be wholly in control of the merged entity and that corporate governance would be balanced. He said that he would have the right to nominate only six of the 18 members of the board of directors, with another three being independent.

Mittal Steel on Tuesday forecast a 70-per cent surge in earnings over the next three years, aided mainly by a rise in demand for steel . Based on market forecasts for steel, which project demand to grow from 3.6 per cent to 4.5 per cent by 2010, Mittal Steel expects earnings before interest, tax, depreciation and amortisation (EBITDA) to reach $9.9 billion in 2008, up from $5.8 billion in 2005. This does not include the $25 billion provision for purchasing Arcelor. Nor does it take into account any acquisitions in the M&A pipeline, greenfield developments or Mittal Steel's minority stake in Hunan Valin of China.

Operating income for the current year is expected to touch $6.1 billion, compared to $4.7 billion in 2005. Full-year shipments are projected to reach about 60-million tonnes. The company also sees $3.35 billion investment growth in 2008, funded by own finances.

While gross incremental EBITDA for 2008 is estimated at $5.3 billion, net incremental EBITDA is expected to total $3.3 billion, after an anticipated price squeeze of $2.0 billion. The company also sees further value creation through commitment to earnings enhancing transactions.

A merger between Mittal and Arcelor would create a steel production capacity of more than 100 million tonnes per year, three times that of Nippon Steel, its closest rival.

Lakshmi Mittal, CEO, Mittal Steel, said the firm would benefit from consolidation of its business in developed and developing markets "by leveraging on technology leadership to upgrade production while benefiting from strong blue-chip customer relationships in developed markets."