Smith International Inc. has moved a step closer to emerging from bankruptcy by agreeing to a $2.5-million settlement of a lawsuit stemming from the oil services company's unsuccessful efforts to take over Gearhart Industries Inc. in 1984.
The tentative settlement, which is subject to approval by the bankruptcy court overseeing Smith's reorganization, essentially removes the Newport Beach company from a $300-million lawsuit filed by Fossett Corp., a Texas company that held Gearhart stock at the time of the attempted takeover.
The Fossett suit alleges that when Gearhart and Smith settled their takeover battle, Gearhart paid $29 million too much to secure its independence. In the agreement ending the takeover fight, Gearhart paid $80 million to buy back the 5.3 million Gearhart shares that Smith had accumulated.
Although the settlement price was about half the amount that Smith had originally paid for the Gearhart shares, the suit alleges that the payment was still $29 million higher than the fair market value of the stock at the time of the settlement.