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Despite Legal Problems, Firm Turns Aggressive in Marketing New Products : A Leaner Smith International Is Back in Fighting Trim

May 10, 1987|JANE APPLEGATE | Times Staff Writer

Baker officials have been acting as intermediaries in negotiations between Smith and Hughes for months. Carroll has attended several meetings in Orange County, Texas and New York.

Carroll said he is cautiously optimistic about reaching an agreement. He said Smith believes that $10 million would be an appropriate settlement for its infringement of the Hughes' patent.

"I would be hopeful that with Baker being very well managed, there may be a settlement," said Carroll, who carries a half dollar-size rubber O ring in his briefcase. It is the small rubber device that was at the center of the patent infringement litigation.

"We honestly believe it is not possible to patent an 'O' ring," Carroll said, offering the ring to a visitor.

He said the acrimony between Hughes and Smith stretches back 30 years or more, beginning with a clash in corporate culture and Hughes' original product dominance in the Oil Patch.

The hatred spilled into bankruptcy court this year, when Hughes filed seven appeals, objecting to virtually every action approved by U.S. Bankruptcy Judge James R. Dooley in Los Angeles.

"Hughes fights everything," Carroll said . "It's harassment, nothing more than that."

But apparently Baker's influence has already been felt. Last Thursday, Dooley dismissed all seven Hughes appeals at the request of both Smith and Baker Hughes.

Sources close to the case said the decision to drop the appeals was made by the Baker executives now working at Hughes. After the ruling, attorneys for Smith and its unsecured creditors' committee said they welcomed the action because it will save them a lot of time and money.

Meanwhile, Smith executives say they are confident that the company will emerge from bankruptcy stronger and wiser. "We have a hell of a lot of cash," Carroll said, expressing optimism despite the large 1986 losses.

Still, Smith executives are not ordering champagne.

In addition to the estimated $450 million that Smith owes to all its creditors, including Hughes, Smith is battling a $21-million claim recently filed by the Internal Revenue Service for back taxes from 1980 to 1985. Smith disputes the claim.

Costly Proceedings

And being in bankruptcy proceedings creates more work and expenses for the beleaguered company. Carroll said Smith spends about $6 million a year on attorney and consulting fees relating to the bankruptcy.

Each Friday, Carroll must submit a voluminous financial report to the court. And he spends hours providing detailed information to the various creditor's committees.

So far, he said, the relationship with Smith's bankers and others has been "cordial." Bernard Shapiro, an attorney representing the court-appointed unsecured creditors' committee agreed.

"The relationship with Smith has been very professional, cordial and constructive," Shapiro said. "When the current oil (drilling) crisis is over, the creditors hope Smith will emerge as a strong competitor."

Smith has until June 30 to submit a reorganization plan to the bankruptcy court. If it does not meet that deadline, the creditors may submit a plan of their own, Shapiro said.

With the legal dust settling and the stock price rising, Smith has some breathing space to ponder the future. Smith executives say they would like Smith to maintain its corporate independence, but some Wall Street analysts are skeptical.

Expects Takeover

"I can't see the company remaining independent," said Philip K. Meyer, an oil industry analyst for the Dillon Read investment firm in New York. "The ultimate resolution is that it has to be bought out."

Meyer said a likely suitor might be Halliburton, a Dallas-based oil field services company. But Meyer and others said Smith's current bankruptcy proceedings have deterred any serious takeover prospects, at least for the moment.

Other analysts are more confident that Smith can make it alone.

"They probably are not going through all this to be snapped up," said Kevin Simpson, an oil services industry analyst for Drexel Burnham Lambert in New York.

"Smith could be spectacular by itself," if the oil drilling industry makes a full recovery, he said.

Meanwhile, analysts agreed that the unknown quantity in Smith's future is its largest individual stockholder.

Industrial Equity (Pacific) Ltd., a New Zealand investment firm, has a 15.2% stake. So far, Carroll said, Industrial Equity has not discussed any specific plans for Smith, but "anything's possible."

Ronald Langley, president of Industrial Equity's North American operations, sits on Smith's board and his company is seeking a second board seat.

Langley was out of the country last week and unavailable for comment.

"We have a good working relationship with Langley," Carroll said. "They are clearly a friendly company."

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