The Times daily quoting sources close to Nippon Steel of Japan on Monday reported that a powerful clause in its 2001 technology tie-up agreement with Arcelor could dramatically reduce a would-be buyer's interest in the French-run company.

The so-called Change of Control clause that is understood to be written into the partnership contract would give Nippon Steel the right to withdraw the patents for any technology that it shared with Arcelor, if that company's ownership structure shifts in any way.

In the case of the tie-up between Arcelor and Nippon, that threat could be a deal-breaker for any would-be suitor. Nippon's contribution to the partnership has been to provide the technology for a light, high-grade sheet steel of a sort used increasingly in the auto industry, and particularly by Japanese carmakers.

With the traditional big three American car manufacturers still in a deep rut, Japanese rivals such as Toyota and Honda have been increasing sales spectacularly and are customers that any acquirer of Arcelor could ill-afford to lose.

Arcelor makes the Nippon Steel-designed sheets for European factories of the Japanese carmakers and would, analysts say, be considerably less attractive without that lucrative sales channel.

Car industry insiders say that Toyota, Nissan and Honda are watching the progress of the Arcelor-Mittal battle closely. Arcelor declined to comment.

According to the report, the Japanese big three have already tested the domestic steelmakers' production capacity to breaking point and are wary of any move that could disrupt high-grade sheet supplies.

According to the report, a Nippon Steel spokesman would not deny the existence of the clause, but did not comment on whether the company would exercise its right to pull key technologies from Arcelor.

Lakshmi Mittal is expected to send an explanation of his plans for Arcelor to the finance ministers of France, Spain and Luxembourg to allay fears of heavy cuts in production.

The plans are understood not to guarantee jobs, but to emphasise that there is little overlap between the two companies that would require rationalisation.

Politicians in Luxembourg, Arcelor's registered home, are seeking a way to implement the European Union takeover directive that would allow the company to introduce traditional 'poison pills' to stop any bid from Mittal succeeding without the board's approval.

Luc Frieden, the Finance Minister said that a draft of the proposed law would allow a board to act to frustrate a hostile offer without, shareholders' prior approval, but this is likely to be challenged in the European Court.