## Facts

- The Williams Companies, Inc. (Williams) was a publicly traded Delaware corporation that owned and operated natural-gas infrastructure assets.
- In early 2020, amid the COVID-19 pandemic and an oil-price war, Williams’s stock price fell sharply, and the market for energy companies was volatile.
- Williams’s board of directors considered adopting a stockholder rights plan (a poison pill) to address the risk that activists might target the company while its stock traded at depressed prices.
- Two of the company’s 12 directors had prior experience at other companies with activist investors who accumulated stock, obtained board seats, and then sought to change board composition.
- The board met twice to consider a pill and received advice from outside legal and financial advisors, but it did not meaningfully analyze Williams’s own history with activism or develop a record of any specific, imminent activist campaign against Williams.
- On March 20, 2020, the board adopted a one-year rights plan (expiring March 20, 2021) with features that were more aggressive than many contemporaneous pills, including:
  - a 5% beneficial-ownership trigger (rather than the more common 10–15% thresholds for non-NOL pills),
  - a limited exception for certain passive investors, and
  - broad “acting in concert” provisions aimed at “wolf-pack” activity, including aggregation concepts that could extend beyond holders acting pursuant to an express agreement.
- The board left the pill in place rather than redeeming it as market conditions evolved and no concrete activist threat materialized.
- A class of Williams stockholders sued in the Delaware Court of Chancery, alleging that the directors breached fiduciary duties by adopting and maintaining the pill; the case proceeded on an expedited schedule to a post-trial decision.

## Issues

1. Whether the board had reasonable grounds, under *Unocal* enhanced scrutiny, to conclude that Williams faced a threat to corporate policy and effectiveness sufficient to justify adopting and keeping a poison pill.
2. Whether the pill’s features—particularly the 5% trigger, limited passive-investor exception, and expansive acting-in-concert provisions—were a reasonable and proportionate response to the threats the board identified, and not coercive or preclusive.
3. Whether the court should grant declaratory and injunctive relief against continued operation of the rights plan.

## Decision

- The Court of Chancery held that the directors breached their fiduciary duties under *Unocal* in adopting and maintaining the rights plan.
- The court declared the rights plan unenforceable.
- The court permanently enjoined the continued operation of the rights plan.

## Legal Principles

- A stockholder rights plan is a defensive measure reviewed under *Unocal* enhanced (intermediate) scrutiny.
- Under *Unocal*, directors must show:
  - reasonable grounds for perceiving a threat to corporate policy and effectiveness (supported by a good-faith, reasonable investigation), and
  - that the defensive response is reasonable in relation to the threat posed and is not coercive or preclusive.
- Rights plans can be valid, but their terms must be tied to a threat the board can identify with more than generalized concerns; fear of activism in the abstract, without a developed record of a specific risk, may be insufficient—especially when the plan is unusually restrictive.
- In assessing proportionality, the court evaluates the plan’s practical impact on stockholders’ ability to acquire stock, communicate, and act collectively in legitimate efforts to influence corporate governance.
- A pill’s combination of unusually low triggers and expansive aggregation/acting-in-concert provisions can operate to chill legitimate stockholder activity; when not calibrated to a defined threat, such a plan can fail *Unocal*’s second prong.
- *Unocal* scrutiny applies not only to adoption but also to continued maintenance of a pill; boards must reassess whether an extreme defensive measure remains justified as circumstances change.

## Conclusion

In *Williams Companies Stockholders Litigation*, the Court of Chancery applied *Unocal* to Williams’s pandemic-era, anti-activist poison pill and found the board’s stated concerns—general activism risk, worries about short-term agendas, and “lightning-strike” accumulations—too generalized to justify a rights plan with an unusually aggressive set of features, including a 5% trigger and expansive acting-in-concert provisions. Because the board did not develop a record of a specific threat and the plan’s terms were not a proportionate fit for the threats identified, the court declared the pill unenforceable and permanently enjoined its continued operation.


Williams Companies Stockholders Litigation, 2021 WL 754593 (2021)