Broadcom Nearing Deal to Settle Lawsuit Over 2014 PLX Technology Takeover
18 August 2016 - 5:20AM
Dow Jones News
Broadcom Ltd. is nearing a deal to settle a shareholder lawsuit
accusing it of underpaying in a 2014 takeover of PLX Technology
Inc., according to people familiar with the matter, a case that
also leveled allegations of conflicts of interest at PLX's
bankers.
Avago Technologies Ltd., a predecessor of Broadcom, bought PLX
for about $300 million. Some shareholders sued, alleging the price
was too low and the process was tainted, which are typical
allegations in the wake of a buyout.
The investors also accused Deutsche Bank AG, which advised PLX,
of brokering a lowball sale to curry favor with Avago, a longtime
client of the bank and a voracious acquirer. Avago had paid
Deutsche about $56 million in fees over the previous few years,
more than 10 times what the bank made advising PLX on the sale,
according to a court filing.
Under the agreement, which hasn't yet been completed and could
change or fall apart, Broadcom would pay $14 million to former PLX
investors, the people said.
Some of that is attributable to claims against Deutsche Bank,
the people said, though Broadcom would pay some of that on Deutsche
Bank's behalf under terms of the bank's engagement letter. Deutsche
Bank received a $4.3 million fee on the deal.
Neither PLX's directors nor Deutsche Bank are expected to admit
wrongdoing, people familiar with the matter said. A spokeswoman for
the bank declined to comment.
A spokesman for Broadcom declined to comment. Avago earlier this
year acquired Broadcom, the California-based microchip giant, and
took its name.
Not resolved by the settlement are some claims against an
activist investor who sat on PLX's board and pushed for the deal,
the people said. The investor, Eric Singer, and his former fund,
Potomac Capital Partners, have denied wrongdoing. Mr. Singer
declined to comment through his attorney.
A crop of lawsuits over the past two years have accused bankers
of giving conflicted advice or making errors that shortchanged
investors. Some have settled for millions of dollars, including
cases involving Credit Suisse Group AG and Goldman Sachs Group
Inc.
The specter of lawsuits has influenced the metabolism of deal
making, as lawyers play defense and bankers grapple with potential
conflicts or the appearance of them.
The trend appears to have waned, part of an overall slowdown in
merger-related lawsuits brought by investors, but a handful of
earlier-filed cases are working their way through the courts. The
PLX lawsuit was brought in July 2014 and had been headed toward a
trial.
The plaintiffs accused Deutsche Bank of rigging the sales
process in favor of Avago, a longtime client. Specifically, the
plaintiffs said Deutsche Bank had reduced its financial projections
for PLX to make Avago's $6.50-a-share offer appear more fair.
In addition to receiving fees from Avago over the three years
before the PLX deal, Deutsche Bank was a lender to Avago, and at
the time of the negotiations, was advising Avago on its purchase of
another chip maker, LSI Corp., an assignment for which it was
ultimately paid $30 million.
Deutsche Bank denied the allegations, though its case wasn't
helped by an internal email that surfaced during litigation in
which a senior banker said the sale of PLX, its client, had
demonstrated the bank's "continued strong relationship with
Avago."
The allegations mirror those settled in June by Bank of America
Corp., whose Merrill Lynch unit agreed to pay $28 million to settle
a lawsuit over the sale of Websense. The plaintiffs alleged a
conflict in the bank's simultaneous roles advising Websense and
working for its buyer, private-equity firm Vista Equity Partners,
on several other, potentially more lucrative assignments.
The thinking behind these cases is that bankers won't work as
hard for a client that is selling itself if they are trying to win
business from the buyer in the future.
Few such lawsuits have gone to trial, and most deal makers say
it is unlikely that a bank would tank an assignment. Bankers are
typically paid a percentage of the sales price, and securing a
lofty valuation can help in marketing a bank's services to other
clients.
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
August 17, 2016 15:05 ET (19:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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