PARIS, June 30 (RIA Novosti) - Arcelor shareholders rejected a merger with Russian steelmaker Severstal Friday in favor of a bid from the world's No. 1 Mittal Steel.

Shareholders representing 57.94% of Arcelor's stock voted the Severstal bid down, following the board's recommendation to support what it saw as a better deal with Mittal.

The Severstal deal would have gone through if shareholders holding at least half of Arcelor's stock had voted for it. Now, the Luxembourg-based company will have to pay 140 million euros ($175 million) to the Russian company in compensation.

The vote was preceded by a bitter five-month takeover battle with Mittal, resulting in the London-based company raising its offer to 25.4 billion euros. Arcelor and Mittal will hold 50.6% and 49.4%, respectively, in what will be the world's largest steelmaking group.

Severstal offered to pay 13 billion euros for a 25% stake in Arcelor.