Smith Rejects Investor’s Bid for 2 Board Seats : Oil Service Concern Believed Fearful of Takeover Attempt
A New Zealand investment group has increased its stake in financially ailing Smith International Inc. to 15% and is seeking to place two representatives on the Newport Beach-based oil services company’s board of directors.
Smith Chairman and Chief Executive Officer G. W. Neely has rejected Industrial Equity (Pacific) Ltd.’s request for director representation. Neely and other Smith officials were unavailable Friday for comment.
An analyst who follows the troubled company said the Smith officials are worried that the minority shareholder, which has been steadily buying large chunks of Smith stock since October, has a takeover bid up its sleeve.
“What that (the rejection of Industrial Equity’s request) means to me is that Neely considers the minority shareholder as a potentially hostile group,” said Herb Hart, an oil services analyst with S.G. Warburg Inc.
Industrial Equity, the Hong Kong investment arm of New Zealand-based Brierley Investments Ltd., insists that it has no current takeover intentions. But it also says that, as Smith’s single largest shareholder, it will continue to push for two board positions.
According to a document Industrial Equity filed Friday with the Securities and Exchange Commission, the investment concern bought 192,100 shares of Smith International for $5 a share, or $960,500, on Jan. 5. That increased its ownership in Smith to 15% from 11.2%. In trading on the New York Stock Exchange on Friday, Smith shares closed at $4.75, up 12.5 cents for the day.
Intends to Press for Seats
The filing goes on to say that an Industrial Equity representative telephoned Smith’s Chairman Neely on Jan. 28 and asked for two of the investment company’s representatives to be elected to Smith’s board of directors. Neely declined, the document says but adds, “IEP intends to continue to seek to have two of its representatives elected to the board of directors. . . .”
Ron Langley, Industrial Equity’s president of North American operations, said Friday that Neely “flatly refused” the minority shareholder’s request for board representation and he was surprised by the “harsh attitude that he (Neely) took.” He said that Neely did not give a reason for his objection.
Langley said Industrial Equity made its request because “we have a substantial investment in the company and we would like to more closely monitor that investment.” He said Industrial Equity believes that it could assist Smith in coping with the problems that face the company, which is currently operating under a Chapter 11 bankruptcy reorganization and is reeling from a $204.6-million judgment against it in a patent infringement case.
Langley said Industrial Equity rarely tries to take control of a company and is usually satisfied with having a “voice on the board.”
Move Viewed as ‘Risky’
Oil service industry analysts watching Industrial Equity’s buy-up of Smith stock call the investment “risky.” They say it relies on a substantial reduction of the patent infringement award and a revival of the long-depressed worldwide oil-drilling business.
One analyst with a major Wall Street securities brokerage firm has little doubt that Industrial Equity is making a big mistake. “I’m telling our people (investors) to sell their stock because I believe these people (Industrial Equity) will lose their shirts,” said the analyst, who asked not to be identified.
