Varco International agrees to buy ICO oilfield services for $165 million

Varco International Inc., Houston, signed a letter of intent to buy the oilfield service business of ICO Inc. for $165 million cash. But that apparently won�t stop a proxy battle by a Houston investment group for control of Houston-based ICO.


Sam Fletcher
OGJ Online


HOUSTON, Mar. 26�Varco International Inc., Houston, signed a letter of intent to buy the oilfield service business of ICO Inc., also in Houston, for $165 million cash.

ICO officials said they plan to use those proceeds to pay down all of the company�s $118 million in public senior notes and to retire its $32.3 million in convertible exchangeable preferred stock. That would reduce the company�s interest expense by $12.2 million/year and its preferred stock dividends by $2.2 million/year, leaving it �a �pure play� petrochemicals processing company with a strong balance sheet,� officials said.

�We�re encouraged by anything that ICO would do to increase shareholder value, which has decreased 80% in the last 3 years,� said Timothy Gollin, manager of Travis Street Partners LLC, a Houston investment group that is engaged in both a purchase bid and a proxy battle with ICO�s management for control of that company.

However, Gollin expressed doubt that federal regulators would approve the transaction. He said ICO and Varco together command 85% of some area oilfield services markets.

ICO is a leading provider of inspection, reclamation, and corrosion control services for new and used tubular goods and sucker rods.

Varco International�s four main product lines are tubular services, including coatings and inspection; solids control products and services; coiled tubing and wireline products; along with pipeline and other industrial services. The present company was formed last May when Tuboscope Inc. merged with the former Varco International through a pooling of interests and took the Varco name.

In December, Travis Street Partners announced it had acquired more than 5% of ICO�s common stock and offered to buy the company for about $64.4 million, or $2.85/share. That represented an 82% premium on the closing market price for ICO stock at the time, the partnership claimed.

The investment group has since increased its ICO stock holdings to 7.3% and increased its offer to a maximum $3.25/share, or $73.5 million, providing severance costs for the current management do not exceed $1 million. Travis Street Partners claimed the so-called �golden parachute� separation packages for six ICO executives total $10.7 million, or �more than 30 times fiscal year 2000 earnings.� Among those executives, they said, are ICO Chairman Asher �Al� O. Pacholder; his wife, Sylvia A. Pacholder; his daughter, Robin E. Pacholder; and his son-in-law, David Gerst.

ICO officials rejected that and subsequent offers�both higher and lower�by the investment group, but subsequently retained Bear, Sterns & Co. Inc. as financial adviser in a move that resulted in a competitive sales process for its oilfield services business.

In January, Travis Street Partners initiated a proxy fight to elect its three candidates to ICO�s board of directors at the annual meeting.

Since then, the two sides have exchanged verbal barbs, with ICO executives accusing the investor group of attempting to undermine the company�s true value to buy it at bargain prices or else turn a profit on its stock holdings if a third party comes in as a �white knight� with a higher offer.

In announcing the proposed sale to Varco International, ICO directors also postponed the annual meeting of its shareholders until Apr. 17 to provide shareholders sufficient time to evaluate the proposed sale under the non-binding letter of intent.

Contact Sam Fletcher at Samf@OGJonline.com

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