In re PLX: Delaware Court Provides Guidance on Potential Conflicts Involving Activist Directors
In In re PLX Technology Inc. StockholdersLitigation, the Delaware Court of Chancery foundthat the directors of PLX Technology, Inc. (PLX), inapproving the company’s sale to Avago Technologies(Avago), breached their duty of disclosure as wellas their so-called Revlon duties to establish a processdesigned to seek the best transaction reasonablyavailable. Interestingly, the breach associated with thesales process stemmed not from specific misconducton the part of a majority of the directors but fromthe fact that the board’s approval was provided in theabsence of a material fact that one of the directors,Eric Singer, a principal and designee of the activisthedge fund Potomac Capital Partners, neglected todisclose to his fellow directors. That predicate breach,together with Singer’s position with Potomac, ledto the finding that Potomac aided and abetted thedirectors’ breach of fiduciary duties.
In spite of the foregoing, the Court held thatPotomac was not liable to the plaintiffs for monetarydamages. The Court observed that PLX’s salesprocess, albeit flawed, was sufficient to provide evidenceof the value of PLX’s stock. In reaching itsconclusions, the Court provided significant guidancearound the types of issues that may result inpotential conflicts of interest in the M&A context,particularly with respect to directors representingactivist hedge funds.