Steel-maker Arcelor has announced plans to merge with Russian firm Severstal, in a move aimed at blocking a hostile takeover by rival Mittal.
Arcelor had earlier said it was prepared to study Mittal's approach
Arcelor will own 68% of the new firm, leaving 32% in the hands of Severstal's owner, billionaire Alexey Mordashov.
The move comes after Arcelor said for the first time earlier this week that it was prepared to consider Mittal's 25.8bn euros ($33bn; £17.5bn) approach.
Prior to that, Arcelor's board had been vocal in its opposition to Mittal.
Born in 1965, Mr Mordashov is said to have close ties to the Kremlin.
Analysts at the Moscow-based Aton Brokerage said it was inevitable that Mr Mordashov had got the Russian government's blessing for the deal.
"It would be unfathomable to imagine this deal was done without getting prior approval [from the Kremlin]," said the brokerage.
Luxembourg-based Arcelor said the merger with Severstal was due to be finalised at the end of July.
The deal will create the world's biggest steelmaker with a turnover of 46bn euros under the Arcelor name.
Arcelor said its existing shareholders would have about 68% of the combined group, valuing the firm at 44 euros per share, above the 35.62 euros a share of cash and stocks currently tabled by Mittal.
Under the deal, Mr Mordashov will contribute all of his stake in Severstal and Italian steelmaker Lucchini in return for Arcelor shares.
Mr Mordashov will also pay 1.25bn euros in cash for additional Arcelor shares at a price of 44 euros, giving him about 32% of the merged group.
Arcelor's chairman Joseph Kinsch and chief executive Guy Dolle will continue in their positions.
Mr Mordashov will become non-executive president of the Arcelor board, and will have the right to nominate six of the total 18 directors.
"Because it is a friendly merger, the chance of success is very high," said Mr Dolle.
"I have great confidence that the majority [of shareholders] will accept it."
Unsurprisingly, Mittal has attacked the merger, and warned that it would give Alexey Mordashov and Severstal too much control.
"Effectively he [Mr Mordashov] can do whatever he wants with the company," said a Mittal spokesman.
A Paris-based analyst said he though the merger was "a deal-breaker for Mittal".
"It will be very difficult to match this," he added.
Mittal first announced its hostile bid for Arcelor in January.
Shares in Arcelor closed 3% lower at 33.05 euros.