The shock decision last week by Marius Kloppers, chief executive of BHP Billiton, to abandon his proposed takeover of Rio Tinto puts into sharp context how in the space of a year the business world has spun on its axis, from one of unlimited opportunity to one of retrenchment. From a world where banks were queuing up to finance the second-biggest takeover, to one where their doors are closed.

BHP has given numerous reasons for calling off its bid – the difficulty of raising $60 billion (£39 billion) of debt finance, competition issues (particularly on iron ore and coking coal) and the problems of selling off unwanted assets. Kloppers would have been mad to proceed, however attractive the operational synergies might have been.

Both companies now have to rewrite their business plans to reflect the changed world. For the indebted Rio and its chief executive Tom Albanese, that is even more of a priority. The group’s share price closed down 22% last week after BHP withdrew its bid.

For Albanese it is now about maximising cash generation and reducing capital costs. Rio has debts of $40 billion but he believes they are manageable, and in the next fortnight he will tell investors how he intends to make them more so. This will address in detail a $9 billion debt repayment due in October next year.

Big projects such as new aluminium smelters in the Middle East and Canada and iron-ore projects in Africa and America – running into billions of dollars – will be put on hold. Rio’s in-house mergers and acquisitions team will be disbanded to focus on disposals.

The head office, although small, will take some of the pain to show cost-cutting will be felt from the top to the bottom of the group.

Rio’s operations are no longer generating the $1.5 billion of cash a month the company enjoyed in the first half of this year, but it is generating more than enough to meet its debt repayments.

All this won’t pump up the share price, but it will arrest a further decline. The emphasis on mining will focus on operational performance.

For Kloppers and Albanese, who have squared up to each other in one of the most exciting takeover battles for years, the challenges will be about who has the best attention to detail and who can make more money in a difficult environment.

If Albanese can tick these boxes it will make it much easier to raise cash from investors in a rights issue further down the road, because there is a strong likelihood he will need it. And Kloppers needs to prove he is more than corporate muscle hired to pull off one of the most audacious deals of all time.

The real reason the deal was abandoned was not about raising cash. It was the competition problems – and the view that iron ore was not a single market. It has been divided into lump and fine iron ore. And in the former, the combined Rio and BHP would have had a 100% market share.

To rectify that would have required huge disposals and negate one of the main reasons for the deal. It is of little surprise that some members of the BHP board had become restive.

Napier’s cut and thrust IF you are going to make change, do it quickly. Just five months into his post as chairman of Aegis, the £684m media group, John Napier did just that last Thursday. He jettisoned chief executive Bob Lerwill and will take executive control until a successor is found.

Napier believes he can find a new candidate who can do the job better. It’s an abrupt end for Lerwill, who took control of the company in February 2005 when the then incumbent chief executive Doug Flynn went off to run Rentokil Initial. Lerwill had been a non-executive up to that point.

In the intervening period Lerwill has fiercely defended the group’s independence (with the support of his investors) against Vincent Bolloré, the French media magnate. But the share price has not enjoyed similar success.

Napier wants the company to move on. His track record suggests he is not a man to bet against. As chairman of Royal & Sun, the insurer, he helped to recruit Andy Haste; and as chairman of Kelda, the water company, he hired Kevin Whiteman as chief executive. Both individuals went on to deliver huge value for investors.

Napier is an operations man and if he doesn’t like the way things are being done he will want them changed. At Aegis, Lerwill stood in his way. Napier has again put his reputation on the line, and at 66 years of age he is probably at a time in his life when he didn’t want to. He now has to prove he has not lost his touch. With the share price rising 6% on Friday a lot of investors hope he hasn’t.

Doom and gloom

THERE is a growing consensus among our captains of industry that the first three months of next year could see the economy plunge to new depths. Companies are heading for their year-ends and trading in the last quarter has – in most cases – been miserable.

There will be little reason to pepper preclose trading statements with optimism. When companies report year-end profits each chief executive will say there is little visibility in future earnings.

As my colleague Jenny Davey reports on our front page, City analysts are frantically downgrading consensus profits for the next year. This may seem unnecessarily alarmist, but the sooner we reach the point of maximum gloom the better. That way we can start to learn to live with the future.

First blood on rents

SOME five months ago this paper reported that Britain’s biggest retailers had united against their landlords in an unprecedented rebellion and called for a radical change to the way in which they pay rent.

They wanted to pay monthly in advance rather than quarterly, a move that would have a beneficial impact on a retailer’s cash flow.

The two individuals who have championed this, Sir Philip Green and Lord Harris, are now having some success. Last week the British Property Federation agreed to waive quarterly rents for small retailers. And I very much doubt that this is the end of it. The big retailers are hurting just as much and the property companies are going to have to share some of the pain.

john.waples@sunday-times.co.uk

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