(FORTUNE Magazine) – IF THERE IS still romance in basic industry, then it is here, in Cabot Corp. of Boston. Since 1882 the company has produced carbon black, the filthiest, blackest substance known to man. A fine dust valued by the Pharaohs as a pigment for inks, this is carbon in its pure form, a homely chemical cousin of the diamond. Cabot produces the stuff by heating leftover oil sludge to 3,000 degrees F., creating particles so small that a billion of them might fit on the period that ends this sentence. Almost anything black, from stereo components to garbage bags, contains carbon black. It imparts such enormous strength to rubber that tiremakers mix five to eight pounds of black into a typical tire, consuming the bulk of Cabot's production. Under such brand names as Vulcan and Regal, it sells in the U.S. for less than 20 cents a pound, about what it costs to produce. The company that makes this wondrous dirt is an industrial Everyman, exemplifying many of America's old-line manufacturers and the struggle that engages them. Once a colossus, it let itself go while competitors, especially overseas, gained strength. Security analysts have decided the company would be worth more broken up -- no doubt they're right -- and a fearsome Wall Street shark may be getting ready to attack. The board of directors has brought in an impressive new chief with plenty of smart ideas -- but who knows whether he can turn the company around before investors get fed up? Does any of this ring a bell? To recover, Cabot is attempting the sort of industrial renaissance that just a few great old U.S. companies, such as Ford and Caterpillar, have been willing or able to create. It requires tremendous investment, considerable risk, and almost certainly several more quarters of miserably poor returns. The new chief Cabot appointed in February is committed to that course. He is Samuel W. Bodman III, 49, and he thinks his strategy will enrich investors. They have bid the stock up to near its 52-week high. But while profits have improved, they're still awfully low. The most impassioned proponent of Cabot's revival is the distinguished gentleman in the photograph above. He is Thomas D. Cabot, 91, son of the man who founded the business and boss from 1922 until 1960. He is still formidable: sharp, fiery, impatient with nonsense. An outdoorsman, Tom poked / out one of his eyes while cross-country skiing in his 80s, and he is too much a he-man to cover it with a patch. Tom takes credit for building the company, which has enriched five generations of his family, one of Boston's most renowned. His many relatives own about a third of Cabot's stock, and they tend to follow Tom's lead in voting it. His son and his nephew reached high positions at Cabot, but the next generation of heirs are more into music and horse breeding -- not an ''eager beaver'' among them, says Tom. He has warned his relatives that he would be ''mad as hell'' if they sold out Cabot Corp. for a quick profit. Perhaps forgetting that his merchant forebears sold opium and slaves, he says, ''I don't want the company bought by somebody who's going to hurt the Cabot name.'' That somebody sounds like Samuel Heyman, 49, the lanky, blue-eyed former federal prosecutor who won control of the ailing GAF chemicals company in a 1983 proxy fight and turned it around. His subsequent predations, stupendously profitable for GAF, drove Union Carbide and Borg-Warner into painful restructurings. GAF owns almost 5% of Cabot, which a GAF spokesman has described as ''a tired company.'' In meetings with security analysts, GAF said Cabot would be better broken into pieces. (Heyman declined to speak on the record to FORTUNE.) Analysts estimate Cabot shareholders could as much as double their money in a breakup. ALMOST everywhere you look at Cabot, there is a fire that needs putting out. The company is still clearing the wreckage from several failed diversification schemes, including an enormously costly infatuation with an assortment of metal alloys. Carbon black remains Cabot's most important product. Cabot operates in 19 countries, and its overseas business is swell. But in the U.S., the largest market for the blacks used in tires, excess production capacity has made them a commodity in glut. Cabot's higher-margin blacks, used in such products as newspaper inks and copier toners, don't yet add up to a big business. Most of the rest of Cabot's operations are in natural gas. With gas stuck in a price slump, they are making almost no money at all, and Heyman presumably would sell off the lot. Bodman, characteristically, has other ideas. Far from tired, he is one of those maddeningly gung-ho managers who see each new day as another chance to excel and every problem as an opportunity. In Cabot's deterioration he sees a chance to enrich shareholders by nurturing the company's weary old carbon black business back to vitality. Cabot still holds 35% of the world market, the largest share of any company, and Bodman thinks he can gain a cost advantage over competitors by consolidating its worldwide purchases of petroleum feedstock. He is also investing $200 million -- more than Cabot's total earnings for the past five years -- in carbon black. A quarter of that is for maintenance long deferred in the company's 22 plants. Another $70 million is going into brand-new plants on the Pacific Rim. With the remainder, Bodman is installing up-to-date process-control equipment and pursuing basic research. The new, more sensitive production equipment supports his promising marketing plan to segment the carbon black business into ever smaller pieces, selling subtly different grades of black that are characterized by precise gradations of particle size and structure. These differences determine the blacks' performance in end products such as tires: For example, complex particles shaped like bunches of grapes but finer than the elements of cigarette smoke are best for tires driven on wet roads. Bodman also hopes to develop new products, such as affordable smudge-free inks for newspapers, as well as less costly production methods. Bodman predicts a big payoff in a couple of years. Says he: ''I may be wrong, but these investments are a measure of my conviction.'' Bodman's natural gas strategy is partly a waiting game. He does not want to sell assets with prices so depressed, and he plans to exploit Cabot's customer base in New England, where gas is in short supply. Despite the threatening vibes from Wall Street, he is investing in exploration in a bet on higher prices sometime soon. According to Kimberly Ritrievi, an analyst at Paine Webber, each 10-cent rise in the price of gas, recently $1.57 per 1,000 cubic feet, would add $2.5 million to Cabot's income. ROUND-FACED, florid, and balding, Bodman looks like an earnest, hairless Santa. Unusually cerebral for a corporate executive, he also is easy to like. Over a meal at the comfortably gloomy Somerset Club, one of Boston's oldest, he plunges into food and conversation with equal relish. He says his first meeting with a Cabot took place one Sunday several years ago, when Bodman was moving into his townhouse on Boston's Beacon Hill. By chance it is next door to the home of Louis Cabot, now 67, Tom's son and successor as CEO. Bodman, wearing a filthy sweatshirt and Bermuda shorts as he carried boxes inside, was approached by Louis, clad in ascot and blazer. Louis introduced himself, gently mentioning that he was expecting guests who would be arriving soon. Bodman went indoors. Bodman is known around Boston as an impatient, hands-on manager who would rather make a mistake than do nothing. He hates leaving anything unfinished, whether a task or a train of thought, and his resume is extraordinary. Trained as a chemical engineer, Bodman got top grades at Cornell, earned his Ph.D. at MIT, then immediately joined MIT's faculty. At the same time he became the technical adviser to American Research & Development, General Georges Doriot's trailblazing venture capital outfit, which started Digital Equipment Corp. with $270,000. In 1970 Bodman joined FMR Corp., operator of the famous Fidelity mutual funds. He co-founded a successful venture capital unit there and rose to FMR's No. 2 position, as far as any outsider could advance in that family-controlled firm. During Bodman's four years as president, FMR's assets swelled from $19 billion to $65 billion, and by all reports Bodman coolly managed the growth. Bodman comes to Cabot respectful of the company's history but far from reverential. Like so many of America's industrial giants, Cabot retained a sense of its own greatness long after it was deserved. In the late 19th century, when Godfrey Cabot founded the business, carbon black was called lamp black and used mainly in inks and pigments. Godfrey produced the stuff by burning natural gas under a steel beam, then scraping off the resulting soot. In Appalachia, where he built his plants, natural gas was so cheap that Cabot made money while the plants wasted over 90% of the available hydrocarbons, spewing dense clouds of smut from their smokestacks. THE MARKET for carbon black exploded after World War I. Until then zinc oxide reinforced the rubber in tires. When the production of brass for shell casings consumed the available zinc, chemists chanced on carbon black, which worked even better. No scientist has ever figured out how the carbon particles do their black magic. Depending on the grade of carbon black used, tiremakers found they could maximize either a tire's life or its traction. (Americans usually opt for durability, but in most other countries people prefer a surer grip on the road.) The next major advance came in the Forties, with a process to make carbon black from cheap byproducts of oil. That freed plants from the need to locate near sources of gas. Cabot used the new technology to push into overseas markets and became the only worldwide carbon black producer. By the late Fifties it had seized the leading share in almost every market it served. The company Tom passed on to his son in 1960 did not remain long in Louis's hands. A graduate of Harvard business school, Louis set out to regularize the company's management according to modern principles. He chose a lucid nuclear physicist named Robert A. Charpie as CEO while remaining Cabot's chairman for years. Charpie, now 63, set out to diversify a company that still earned 70% of its profits in carbon black. He designated carbon black a cash cow and invested the hundreds of millions of dollars it generated in the metals business and in natural gas. For a few sweet years at the end of the Seventies, Charpie's strategy transformed staid Cabot into a go-go company with annual returns on equity as high as 35%, vs. 10% in 1988. Cash cow status did not hurt the carbon black business at first. In 1970 Cabot introduced the XF70 furnace, the last important breakthrough in carbon black technology. It enabled Cabot to produce a wider variety of carbon blacks at greatly reduced costs. For a few years before the competition caught up, Cabot had an unbeatable edge.

From the outside -- the only perspective from which one can view the XF70 and live -- the furnace looks like a long thick horizontal pipe attached to a generic petrochemical plant. Inside the pipe's business end, a jet of flaming methane gas hurtles at a bullet-fast 1,500 feet per second. Petroleum feedstock the color and texture of melted chocolate squirts in. And presto! That hellish blast atomizes the feedstock on contact, cracking the hydrocarbons and creating carbon black and water vapor. Al Morgan, the shrewd MIT-trained Cabot engineer who designed the furnace, is candid about its limitations. ''There's a lot of art to running it,'' says Morgan, a hulking man with the face of a pixie. To control quality, Cabot workers must scoop up samples of black and bicycle them to an on-site lab, where tests can consume 40 minutes. Only then do the people running the plant know enough about what they have been making to adjust the controls properly. Existing sensors can't survive inside the furnace -- and scientists don't yet know what the sensors should sense. WHILE the XF70 enhanced Cabot's ability to supply carbon black, it couldn't do much for waning demand. Radial tires, which last much longer than regular ones, gained acceptance with consumers. Then came the energy crisis, which slashed tire purchases. U.S. tire companies, surly customers in the best of times, demanded the lowest prices from suppliers and refused to buy any carbon black product unless at least two suppliers offered it. The policy deprived U.S. tiremakers of high-performance blacks that Cabot sold to competing foreign manufacturers and impoverished Cabot's incentive to improve carbon black. Bodman is trying to change that: He is talking with Goodyear and Michelin, among others, about jointly developing proprietary products. By the end of 1986, Cabot's metals ventures had flopped and natural gas was in the doldrums. In carbon black such competitors as Phelps Dodge's Columbian Chemicals, West Germany's Degussa AG, and Japan's Tokai Carbon were catching up fast. Cabot's outside directors were sufficiently fed up to recruit Bodman as Charpie's replacement. He came in as president and spent much of his first year visiting all Cabot's operations at 35 sites around the world. By the time he became CEO last February, he had seen enough to form his strategic plan. Will it work? Increased R&D spending, upgraded technology, and smarter marketing are hardly radical proposals, but for Cabot, as for many of America's beleaguered manufacturers, they are badly needed and have long been lacking. On top of his other tasks, Sam Bodman faces a sizable selling job: He must persuade investors that his strategy will boost Cabot Corp.'s value so much that holding on to the stock will be more attractive than breaking up the company right now and realizing perhaps double the stock's recent price. It's a familiar challenge. Depending on what Sam Heyman or some other raider has in mind, investors could get a chance to render their verdict anytime now.

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