In the recent decision of In re PLX Technology, Inc. S’holders Litig., Consl. C.A. No. 9880-VCL (Del. Ch. Oct. 16, 2018), the Delaware Court of Chancery found that shareholders of PLX Technology Inc. (“PLX”), a semiconductor firm, failed to prove that breaches of fiduciary duty by its directors caused any damages.
The shareholders brought the suit after PLX announced the proposed sale to a competitor, Avago Technologies Wireless Manufacturing Inc. (“Avago”) at a price of $6.50 per share. The complaint alleged that the sale process was flawed, stating that Potomac Capital Partners LP (“Potomac”), a 10% shareholder of PLX, pushed for a quick sale that undervalued the company, at a time when PLX was on the cusp of significant improvement.
The claims against two directors of PLX and Avago were previously dismissed, and a settlement was reached with the remaining director defendants before trial. The aiding and abetting claims against Potomac were the remaining claims left to be decided in the instant opinion.
In a lengthy opinion, Vice Chancellor Laster found that while PLX shareholders showed that the company’s directors breached their duty in approving a sale to a competitor in 2015, Potomac did not aid and abet those breaches of fiduciary duties even though it pushed for the deal while not providing transparent information to other investors.
Regarding damages, Vice Chancellor Laster said that the financial projections relied upon by the shareholders’ valuation expert to demonstrate the company was worth $9.82 per share were aggressive and unlikely to be realized, because they anticipated significant revenues from a product line (not yet in existence) that would require PLX to enter a new market. In addition, PLX had a history of missing its projections. Citing the Delaware Supreme Court Dell decision, the opinion stated that “The Delaware Supreme Court has cautioned that “[m]anagement’s history of missing its forecasts should . . . give the Court of Chancery pause.” Dell, Inc. v. Magnetar Glob. Event Driven Master Fund Ltd., 177 A.3d 1, 27, n. 129 (Del. 2017).
In relying upon deal price, the opinion cited to recent Delaware Supreme Court rulings, including Dell and DFC Glob. Corp. v. Muirfield Value P’rs., 172 A.3d 346, 362 (Del. 2017), that give significant weight to deal price in an appraisal actions. Because the Court found that PLX conducted an extensive marketing process both before and after the offer received from Avago that satisfied the High Court’s requirements, plaintiff stockholders were unable to demonstrate damages.