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Williams Cos. Loses Appeal Over ‘Unprecedented’ 5% Poison Pill

Nov. 4, 2021, 5:35 PM

Williams Cos. shareholders secured their victory against the energy company’s unusually restrictive anti-takeover poison pill—triggered if any investor bloc reached a 5% ownership threshold—when Delaware’s top court upheld a decision striking down the defensive measure.

The state’s justices issued a brief order late Wednesday affirming the ruling “on the basis of and for the reasons” given by then-Vice Chancellor Kathaleen S. McCormick, who blocked the poison pill in an 89-page ruling for Delaware’s Chancery Court. She was later elevated to the court’s top post.

McCormick found in February that the Williams board “failed to show that this extreme, unprecedented” poison pill “bears a reasonable relationship to their stated corporate objective” of warding off “short-termism” by activists looking to exploit the initial market panic over the Covid-19 pandemic.

Although specific instances of shareholder activism might support a poison pill, the board’s insistence “that all stockholder efforts to change or influence corporate direction constitute a threat to the corporation runs directly contrary to the ideological underpinnings of Delaware law,” the judge wrote.

She acknowledged that poison pills could be justified as an effort to fill “gaps” in securities reporting laws that leave room for “lightning strikes” by an investor making a stealth move before disclosure is required. But the response would still have to be proportional, McCormick said.

The Delaware Supreme Court’s one-page order Wednesday, signed by Justice Karen L. Valihura, didn’t contain any reasoning. The lawsuit was brought last year by a pension fund and an attorney specializing in shareholder activism.

The plaintiffs were represented by Bernstein Litowitz Berger & Grossmann LLP, Grant & Eisenhofer PA, and Friedman Oster & Tejtel PLLC. Williams was represented by Morris, Nichols, Arsht & Tunnell LLP and Davis Polk & Wardwell LLP.

The case is Williams Cos. v. Wolosky, Del., No. 139, 2021, 11/3/21.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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