Hedge fund Atticus Capital has written to steel maker Arcelor, in which it owns a 1.3% stake, urging the firm to consider a takeover from Mittal Steel.
Arcelor is facing the heat of a hostile takeover bid
US-based Atticus says a deal "would offer synergies and strategic benefits to all participants in an industry in need of consolidation".
But Arcelor has dismissed the demand to open talks on the proposed 18.6bn euros ($22bn: £12.7bn) hostile takeover.
The company said in response to the letter: "For us nothing has changed."
Arcelor is the world's second largest steel company and employs 98,000 people worldwide. It was created in a merger four years ago between three steel companies - Spain's Aceralia, France's Usinor and Luxembourg's Arbed.
Mittal's proposed takeover of Arcelor would create an industry giant, accounting for about 10% of the world's total steel output.
But it has been rejected by the Arcelor board and prompted opposition from some politicians fearing job cuts.
Mittal boss Lakshmi Mittal says Europe needs a stronger steel sector to compete with China, but he has struggled to convince leading European politicians about the merits of his firm's bid.
At the weekend he told Indian television he was "very sad" about "racist" remarks made about his proposal.
He continued: "If a company like ours faces resistance for merger, it could affect businessmen in India who are aspiring to expand globally."
The remarks come after Indian Trade Minister Kamal Nath last week warned European governments not to consider skin colour in business deals.
However, French President Jacques Chirac on Monday denied there was racism in the European reaction, saying he had no problem with an Indian taking over a European company.
President Chirac said it was Mr Mittal's "right" to make a surprise bid, but he went on to say the action was "hostile, what is called an unfriendly bid, purely financial".
He added: "That is to say without any industrial plan being known or revealed and contrary to custom, without any prior consultation."
The French government is particularly worried about the possible impact on Arcelor's 28,000 French staff, despite assurances from Mittal.
Last week, Arcelor said it would boost its annual shareholder dividend by 85%. The announcement came as Arcelor unveiled a 66% increase in annual net profits, up to 3.8bn euros for 2005.
Mittal, the world's largest steel firm, earlier reported that its annual net profits had dropped by 29%.