LUXEMBOURG (Guardian) -- Arcelor, the pan-European steel group fighting a hostile €20bn takeover approach from Mittal, yesterday vowed to go on the offensive in its battle with its Indian-owned rival after winning overwhelming support from its shareholders for its defense strategy.

But almost a quarter of investors showed their anger or disappointment with that strategy by voting against the reelection of veteran supervisory board chairman Joseph Kinsch.

However, the majority were swayed by the 65% increase in the dividend to €1.85 a share and the prospect of a €5bn return of capital if Mittal fails.

Several of the 400 shareholders present, representing 35% of the group's equity, voiced criticism of the Arcelor board's decision to place its newly acquired Canadian unit, Dofasco, in the hands of a Dutch-based trust as a way of frustrating Mittal's bid.

Colette Neuville, head of the French minority shareholders' lobby, Adam, insisted that shareholders should have been consulted and warned the board against any capital-raising exercise to fund a new acquisition spree.

But she and other rebels appear to have been won over during private talks with the Arcelor board.

The widely expected rebellion by disgruntled shareholders petered out, not least because of reports that Lakshmi Mittal had personal and commercial links to a majority of the independent directors of his group and has 98.3% of voting rights at board meetings. He said last week he would be prepared to dilute his family's control if his bid succeeds. ------Arcelor surprised

Observers pointed out that, while the Arcelor board was "pleasantly surprised" by the scale of support at the annual meeting, key shareholder groups, including Mittal supporters and hedge funds controlling up to 30% of the equity, had been strangely absent and Arcelor had failed to give clear signals of its future strategy.

Both Kinsch and Guy Dollé, chief executive, insisted that Arcelor retained several weapons in its armory to be rolled out either before or after Mittal launches his formal offer, originally planned for mid-April but now postponed until at least mid-May. The chairman said: "When I speak of war I mean we are confronted with an aggression on our firm and we are not just in defense, but are developing offensive ideas which we will present when we can."

Arcelor this week acquired a new €4bn loan facility to fund new acquisitions.

Kinsch, however, made plain that the Arcelor board would have to consider an improved, all-cash offer from Mittal equating to the group's full value compared with the current bid which includes 75% of Mittal shares - a "fatal flaw" given the lack of transparency at the predator and a "financial risk" for investors.

But Arcelor sowed further confusion about its tactics when it confirmed it would hold urgent talks with Romain Zaleski, a Franco-Polish entrepreneur who has built up a 4.3% stake in the group, and when it refused to comment on talks it is said to be having with Russian steel group LNMK whose owner, Vladimir Lissin, has said he wants to take a 20% stake.

Dollé said he had met the Russian last weekend - and been given cake and eggs to celebrate the orthodox Christian Easter.