BOC ready to grab back the limelight

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MODEST in appearance, devoid of an aura, defiant rather than expansive, stubborn rather than charming, it is only gradually that the message in Danny Rosenkranz's unblinking manner hits you: here is a man it would be a mistake to underestimate.

So much of a rough diamond is the 52-year-old Mr Rosen-kranz that he remained an outsider at BOC, the industrial gases group where he is now chief executive, until he took over its management in 1996 after 30 years in the organisation.

ABN Amro analyst Peter Edwards sums up the City view of the man: "He knows the industry well. Clearly, he's very focused. For a while he was perceived as lacklustre. But that may be changing."

Mr Rosenkranz's personal stance reflects the stance of BOC itself. Unappreciated to the point of being overlooked as a Footsie 100 company, BOC shares have outperformed the chemicals sector this year - overtaking ICI last month.

Despite the media focus on the non-merger of Glaxo and SmithKline Beecham, Zeneca's intended sale of its chemical division and ICI's pounds 300m sale of its utilities and services operation, BOC might be construed as the real news.

Consider Salomon Smith Barney's take on the industrial gases sector: It "is a very attractive sector in the chemical industry: with only a few players and high barriers to entry, the sector should continue to grow at 2.4 times industrial production and show strong value creation with relatively low risk".

Consider Mr Edwards' spin on that summary: "BOC is the cheapest stock of the bunch."

Founded by French chemists Arthur and Leon Brin in London in 1886, Brin's Oxygen Company began producing oxygen to provide the limelight for Victorian stages. By 1906, when the name was changed to the British Oxygen Company, a German scientist named Carl von Linde had patented a more efficient method for separating atmospheric gases. The two competed to sell compressed gases to the fledgling iron, steel, linoleum, and milk-preserving industries.

By 1978, when BOC doubled its size by buying the US company Airco, the present shape of the $30bn (pounds 18bn) industrial gases industry was established. There's a Big Seven - BOC, Linde, German and US competitors and the largest of them all, France's Air Liquide.

"I've been in the business 20 years and market shares have hardly moved at all," says Maris Sedlenieks, a spokesman for Sweden's AGA. "Air Liquide has always been number one."

Mr Sedlenieks explains why: the industrial gases industry is basically a patchwork of national quasi-monopolies. "I think the industry decided long ago that hostile takeovers make little sense," says Mr Edwards.

BOC, for example, has dominant positions in the UK, South Africa, Australia, and throughout much of Asia. The company is taking a minimalist approach to Europe. Last week it sold its Benelux and German gas businesses to Air Liquide for pounds 112m, slightly more than analysts expected. BOC has been weak in the US, despite its 1978 acquisition of Airco. "Airco was first tier in size," says Mr Edwards, "but second tier in management." There it competes against Airgas and Praxair. "It was handicapped in the US because it had relatively few plants on site," says Mr Edwards. "But in the mid-Nineties it built up its on-site presence in the US by doing deals with the mini-steel mills going up. This was smart."

Like its competitors, BOC supplies gases for manufacturing processes like welding and cutting. It sells bottled gas to customers ranging from the Scottish Highlands to the Australian outback. In the 1970s it built up a health-care division called Ohmeda (oxygen therapy and home health care).

Over roughly the same period Mr Rosenkranz built up BOC Edwards to supply vacuum products to microchip manufacturers in need of "clean rooms".

When Mr Rosenkranz took charge at BOC two years ago, he was chary of the health-care division. "I found we were spending a great deal of time on health care and our problems with health care were what people were focusing on." He decided the problem was fixable, but not worth fixing. BOC has since sold off its health-care gases division for pounds 630m.

In contrast, the company has held on to its microchip-supply division even though microchip prices have crashed due to overcapacity. "Semiconductors are in a downturn," concedes Raj Rajagopal, head of BOC Edwards. "But some segments, like Intel, are still doing well. The industry is looking at driving down costs and we're looking to help there."

Two weeks ago BOC announced that pre-tax profits for the year ended 30 September fell to pounds 396m from pounds 445m the year before, on sales of pounds 3.6bn down 10 per cent from pounds 4bn. Earnings per share were 24.66p, down 1 per cent on a continuing business basis.

Mr Rosenkranz says BOC's share price is today about where it was when he took over as chief executive. But then he makes a sales pitch: "Given the collapse in the semi-conductor industry, and our exposure in Asia, maybe that's not so bad."

What he loves to natter about is the reorganisation of BOC he is masterminding. The company is moving from geographically-denominated fiefdoms spread across 20 countries to profit and loss breakdowns calculated according to product group.

The aim is to create a new structure, beginning next month, that will deliver a doubling in profits in five years.

There is iron in Mr Rosenkranz's voice when he talks about the benefits of his reorganisation. "More transparency," he says. "More accountability."

Investors looking for low- risk value plays should pay attention to BOC.