Investors will never know what was really going through the minds of Marius Kloppers and the BHP Billiton board as the long takeover bid for its rival, Rio Tinto, unfolded. But right now it seems like a masterstroke. The collapse in commodity prices and withdrawal of credit means that the only big operators with the capacity to take advantage of distressed valuations are BHP, Vale and China Inc. Debt-drenched Rio, having missed the window to offload non-core assets in a civilised manner after the Alcan deal, is now selling core assets while going cap in hand to its largest shareholder, Chinalco. Another acquisitive miner, Xstrata, patched up its balance sheet after a big debt-funded purchase – Falconbridge – with a rights issue in 2007. Thanks to BHP's bear-hug, that option was closed to Rio.
The air of self-congratulation at BHP's first-half presentation on Wednesday was palpable (the word “outstanding”, in relation to net cash flows, was probably over-egging it). Never mind that net income, down 57 per cent, was less than analysts expected; a very lightly geared balance sheet and a broad sweep of cash-generating assets still gives BHP's Australian shares an 80 per cent premium to peers on a forward price/earnings basis.