Smith to Sell Irvine Offices, 2 Other Holdings : Firm Looking to Raise $77 Million

Smith International Inc. has agreed to sell three of its real estate properties, including the Irvine headquarters of its largest division, and some manufacturing equipment for $77 million.

Proceeds from the sales are intended to boost the working capital of the Irvine-based oil service company, which has entered a Chapter 11 bankruptcy proceeding to reorganize its debt.

Two of the sales, negotiated last year, were revealed in documents filed by Smith this week with the Securities and Exchange Commission.

The audited financial statements in that annual report were the first in three years to receive an unqualified opinion from Smith’s auditors. The prior years’ statements were qualified because of the auditors’ concern over Smith’s litigation with archrival Hughes Tool Co. In February, a federal judge awarded Hughes $204.8 million for Smith’s infringement on a Hughes patent.

Pending Court Approval

The three property sales are expected to close in 60 to 90 days, pending approval by the bankruptcy court.

Smith agreed on Dec. 5 to sell the 68-acre headquarters and manufacturing plant of Smith Tool in Irvine to Hillman Properties West Inc. for $46 million and a 10% share in future development of the property.

After the sale closes, Smith Tool has agreed to lease its Irvine headquarters, including 656,000 square feet of buildings, for at least three years, paying an annual rent of $3.5 million.

Jim Follingstad of Frost Trinen Partners in Costa Mesa, Smith’s real estate consultant, said that in three years Smith intends to relocate its Smith Tool division farther north to be closer to the homes of its blue-collar work force, who tend to live in the San Bernardino-Riverside area.

Consolidation Planned

Also, according to SEC documents, Smith has agreed to sell its Dyna-Drill plant, including an 80,000-square-foot manufacturing facility and a 20,000-square-foot office building, to Avel Corp., a Gardena-based cryogenics manufacturer, for $7 million. Avel President Ross Brown declined Thursday to say what he plans to do with the property.

Follingstad said the Dyna-Drill operation, which manufacturers oil-drilling tools, will move into the Smith Tool plant. The consolidation of operations has been made possible by severe production and staff cutbacks at both Dyna-Drill and Smith Tool in the wake of falling oil prices.

Smith has also agreed to sell and lease back 159 acres in Houston for another office park development. The proposed sale of Smith’s Drilco manufacturing plant to J. R. McConnell, sole general partner of the Houston development partnership Hardy 159 LTD., is for $12 million in cash at closing and a $12-million promissory note. Besides land, the sale includes $10 million worth of equipment.

Smith’s Drilco division has agreed to lease back its manufacturing plant and equipment for three years at a rate of $242,000 a month.