Delaware Chancery Court Strikes Down “Unprecedented” Poison Pill: Poison Pill Provision Insufficient to Survive Unocal Scrutiny if Perceived Threat Is Only Hypothetical and the Provision is so Broad as to Abrogate Potentially Innocuous Exercise of Shareholder Rights

Sullivan & Cromwell LLP - April 6, 2021

In a February 26, 2021 decision, the Delaware Court of Chancery enjoined The Williams Companies, Inc. from continued operation of a stockholder rights plan that Williams implemented in response to plummeting stock prices brought about, in part, by COVID-19 and an international feud over oil prices. Applying the Unocal standard, the Court held that the Board conducted a good faith, reasonable investigation in adopting the Plan, but found that the Company’s response was not proportional to the stated threat. Although the Court balked at the Plan’s 5% threshold, the Court was most critical of the Plan’s abrogation of stockholders’ rights through an overly broad “Acting In Concert” provision and its limited passive-ownership exception.

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