Sale of Smith’s Drilco Unit OKd by Bankruptcy Judge

U.S. Bankruptcy Court Judge James Dooley on Thursday approved an offer from a St. Louis-based investor group to buy the assets of the Drilco Industrial division of Smith International for nearly $5.1 million, which is $3.3 million below book value.

Dooley approved the offer from RB Capital Inc. over the objection of a partnership led by former and current Drilco managers. That group said it planned to make a $5.7-million offer for the assets of Drilco, Smith’s mining equipment division.

Taking into consideration other aspects of the complicated purchase proposals, financial analysts for Newport Beach-based Smith International concluded that the management group’s proposal would give Smith, which is in a bankruptcy reorganization, $468,000 more than RB’s offer.

However, both Smith corporate executives and unsecured creditors argued in support of accepting the RB offer. “The train has left the station,” said Smith attorney Richard Broude, contending that the attempt to put together a competing offer had come too late.

Uncertainty Cited

Dooley, in approving the offer, said that “everything is uncertain” about the ability of the management group to obtain sufficient financing to fund its bid. To postpone a decision on a buyer for Drilco, he added, would pose the risk that Smith would lose the RB offer, which was set to expire at the close of Thursday’s court hearing.

Broude said Smith had gone through months of “tortuous” negotiations with RB, which also encountered difficulty getting financing. An attorney for Smith’s unsecured creditors added that the Drilco sale is being made in a “treacherous market” for oil service companies like Smith, which are suffering from a severe industrywide depression.

The RB offer was accepted despite a warning from Bob Powers, the former vice president and general manager of Drilco, that five Drilco department heads have vowed to resign if RB buys the company. Powers said he was distressed to learn in discussions with RB officers that RB intends to drain money out of the company. RB officials said they had “no comment” to that charge Thursday.

Powers and his partners made their eleventh-hour attempt to buy Drilco after a shareholders committee had objected that the RB offer was too low.

Offer Increased

Jeffrey I. Werbalowski, attorney for the shareholders, said that since his clients had raised objections in September, and in response to the new competition, RB had increased its bid by $750,000.

To further sweeten the pot, during the court hearing Thursday Drilco modified an offer to buy equipment from Smith that could add another $250,000 to Smith’s coffers after the Drilco sale closes.

Under the sale agreement, RB will acquire the inventory, machinery and some receivables of Drilco. Smith will retain ownership of Drilco’s land and buildings, which RB will lease for five years. Drilco has plants in Midland, Tex., and Sudbury, Canada.