Proposed Hughes Merger Not Seen as Aiding Smith

The U.S. Justice Department’s stance on the proposed merger of Baker International and Hughes Tool Co. does not bode well for yet another drill bit manufacturer, Smith International, according to several oil service industry analysts.

For months oil service observers have said that Newport Beach-based Smith might see its chances for survival brighten as a result of the proposed merger. Smith, now in a Chapter 11 bankruptcy reorganization, was slapped with a $205-million judgment in March, 1986, for infringing on a Hughes bit patent.

And the way some analysts figured it, Hughes would willingly reduce the crippling award against Smith in an out-of-court settlement in an effort to convince the Justice Department that even after a ,rHughes-Baker merger Smith would remain a viable competitor in the drilling bit business.

But because the Justice Department is requiring Baker to divest itself of its drilling bit operation as a condition of merger with Hughes, many analysts contend that Hughes no longer has a motive to show mercy to Smith.

Herb Hart, an oil service analyst with San Francisco-based Rowe & Pittman Inc., described the Justice Department’s position as “negative for Smith. There is not the same incentive on the part of Hughes to settle at this point.”

“Smith is on the ropes again,” agreed Phil Pace, an oil service industry researcher for Kidder Peabody & Co. who also believes there is now no reason for Hughes to settle for less.

Investors were apparently not overly concerned. In trading on the New York Stock Exchange, Smith shares closed at $4.625, down 12.5 cents for the day.

Smith officials could not be reached Monday to comment on the latest merger development, and Hughes spokesman Donald King said Hughes “is not going to comment on any litigation in progress.”

Smith and Hughes currently are awaiting a decision from the U.S. Circuit Court of Appeals.