CS Credit Suisse Group

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)

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