A Delaware judge on Feb. 26 struck down Williams Cos. Inc.’s “poison pill” that the energy company adopted early last year as a defense against a possible takeover in the wake of a sharp drop in oil prices.
The company’s poison pill was found to be a disproportionate response to the threat that an activist investor might swoop in when the stock was at a low point during the start of the pandemic, said the judge on Delaware’s Court of Chancery.
“They have failed to show that this extreme, unprecedented collection of features bears a reasonable relationship to their stated corporate objective,” wrote Vice Chancellor Kathaleen McCormick in her ruling.
Williams did not respond to a request for comment and Wolosky could not be reached.
Poison pills are generally frowned upon in the governance arena for their dilutive effect on ownership and had been used sparingly, reserved as emergency measures. But this year’s volatile markets brought them back.
Williams adopted the pill as a protective measure when its stock price cratered to below $10 a share along with plunging oil prices early in the COVID-19 pandemic.
The company set the threshold an investor would have to accumulate to trigger the pill at an unusually low 5% and it included a “wolfpack” provision aimed at preventing investors from contacting other similarly minded shareholders.
In August, lawyer Steve Wolosky, who usually helps activist investors like Starboard Value take on corporate America, took the role of plaintiff in a class action against Williams.
Wolosky argued the pill, which expires March 20, no longer served a purpose as the stock had recovered and he accused the board of using the pill to entrench themselves.
McCormick called the pill “unprecedented in that it contained a more extreme combination of features than any pill previously evaluated by this court.”
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In 2020, companies entered bankruptcy after a sudden plunge in oil and gas prices and, unlike the downturn six years ago, many emerged with nearly pristine balance sheets. But for what end?
Anti-trust watchdog COFECE also said that if the initiative is approved, it would generate legal uncertainty in the industry and distort the system of oil permits.