Arcelor shareholders expect Mittal Steel to improve its 22 billion euro (£18.9 billion) offer - paving the way for a friendly deal between the steelmakers, fund managers said yesterday.

The comments came after Arcelor cancelled a shareholder meeting scheduled for June 21 on a planned 6.5 billion euro (£4.4 billion) share buy-back plan which had been regarded as a defensive move against Mittal.

Arcelor must now choose whether to stick with its plans for a controversial "white knight" merger with Russian steelmaker Severstal or reach a deal with Mittal, which said talks with its takeover target were continuing but the result remained uncertain.

"Very simply this means that the market anticipates that they (Mittal) will raise the offer," a hedge fund manager who declined to be named said.

Others agreed. "Without any doubt, those buying Arcelor shares now believe the offer will be raised," a Paris-based analyst said, adding that he thought the offer would be sweetened.

However, both the analyst and the fund manager said that an offer would need to reach 40 euros per share for it to be recommended by the Arcelor board but some other analysts believe that an offer would need to match the 44 euros per share set for the buy-back scheme.

Mittal's chief executive Lakshmi Mittal said Arcelor's decision to cancel the June 21 meeting made him increasingly confident he could convince its shareholders they should back his offer and pressure management into dropping its resistance.

"We can see a noticeable change in attitude towards Mittal which leaves the door open for the bid to become friendly. However, Mittal

will have to revise its offer to 44 euros in order to turn Arcelor management around," said Mickael Vandenhauwe, an analyst from the Dexia banking group.

But another Arcelor shareholders' meeting scheduled for June 30 to consider its merger plan with Severstal constituted the main "roadblock" ahead, Mr Vandenhauwe said.

One source familiar said Arcelor now hopes to be able to decide by then whether it can recommend a sweetened Mittal bid instead.

Under the Severstal agreement, which is based on valuing Arcelor at 44 euros a share or 29.5 billion euros (£20.2 billion), the Russian group's main owner Alexei Mordashov would end up owning about 32 per cent of the combined group, with that stake increasing to 38 per cent under the separate Arcelor share buyback proposal, which was also priced at 44 euros a share.

Meanwhile, Russian tycoon and Chelsea Football Club owner Roman Abramovich agreed yesterday to acquire a 41.3 per cent stake in the Russian steel firm Evraz Group.

The $3.12 billion (£1.7 billion) deal will see Russia's richest man move back into the country after his exit last year when he liquidated all his assets including his holdings in oil firm Sibneft.

Evraz is one of the largest vertically integrated steel and mining business in Russia. It owns three major steel plants there along with one in Italy and another in the Czech Republic and last year produced 13.9 million tonnes of crude steel.

Mr Abramovich is the governor of the Russian region Chukotka in the far east and is thought to have made $13 billion (£7.05 billion) from the sale of his 72.66 per cent stake in Sibneft to the government controlled Gazprom.