Smith International Buys Synthetic Diamond Firm
Smith International Inc. of Newport Beach announced Tuesday that it has acquired Megadiamond Inc., a Provo, Utah, synthetic diamond company, in an $11-million deal Smith said is designed to provide it with longer-lasting, faster oil drilling tools.
The deal calls for Smith to pay Megadiamond about $3.5 million in cash in fiscal 1985. The balance of the $11 million will be paid during a five-year period, if Megadiamond meets a series of “technical milestones,” according to Bill Currer, vice president of Smith Tool, a Smith subsidiary in Irvine.
Smith Chairman Jerry Neely said Megadiamond’s technology should enable Smith to develop a line of tools that cut better and reduce the cost per foot for drilling oil and gas wells. Smith sells oil and gas drilling equipment and services. Megadiamond’s synthetic diamond material, called polycrystalline, is about 1,000 times harder than the tungsten carbide now used in drilling tools, Currer said.
In an unrelated announcement, Neely revealed partial financial results for Smith that included costs of its takeover fight with Gearhart Industries Inc. of Fort Worth. Although the company has delayed reporting its 1984 earnings while negotiations with Gearhart continue, Neely said Smith’s fiscal 1984 revenues were $747 million, up 7% from fiscal 1983 revenues.
Megadiamond’s president, Duane Horton, said in a telephone interview Tuesday that his company is very excited about developing new products for the drilling industry. Horton said he expects the first Smith product to be finished within a year and expressed confidence that Megadiamond will meet Smith’s technical requirements. “We’d like to make the $11 million the first year,” said Horton. “If we meet the milestones, we can get the whole amount sooner than five years. We think we are going to have a great future together.”
Megadiamond, a privately held company, has 123 employees and reported $3.5 million in revenues in fiscal 1984.
Invested in Gearhart
In his financial presentation to securities analysts meeting in Newport Beach, Neely said Smith has invested a total of $163 million in Gearhart stock since 1983. Gearhart, a high-technology oil services company, has been fighting Smith’s attempts to acquire it since April, 1984. Neely said Smith has not determined how much of its Gearhart investment it will have to write off in fiscal 1984.
About $16 million of Smith’s $37-million interest expenses in 1984 were related to debts incurred to buy Gearhart shares. The company’s short-term debt increased from $69 million in fiscal 1983 to $143 million in fiscal 1984, according to Smith officials.
Smith is also making a $36-million provision for previously announced write-offs in the fourth quarter. Those write-offs relate to Smith’s decision to sell most of its mining equipment businesses.
