Over the past decade, Williams Companies lawsuits have produced three notable outcomes: a Delaware Chancery Court struck down the Tulsa-based pipeline firm’s 2020 shareholder rights plan as a breach of fiduciary duty, the Delaware Supreme Court ordered Energy Transfer to pay Williams more than $600 million over a collapsed $38 billion merger, and a federal securities class action tied to a 2015 subsidiary deal was dismissed with prejudice and affirmed on appeal.
The 2020 Poison Pill Case
On March 19, 2020, with the pandemic and a global oil price war pushing the share price from about $24 to $11, the Williams board adopted a stockholder rights plan without a shareholder vote. There was no specific takeover threat. The board pointed to general market volatility and the risk of opportunistic investors buying in at depressed prices.
The plan’s terms were unusually aggressive. It used a 5% ownership trigger, well below the 10% to 15% typical in rights plans. “Beneficial ownership” was defined to sweep in cash-settled derivatives. A broad “acting in concert” provision could aggregate holdings of investors engaged in merely parallel conduct, with a “daisy chain” clause linking investors indirectly through third parties. Trial evidence showed the “passive investor” exemption was drawn so narrowly that only two of the company’s existing investors would have qualified.
The Lawsuit
Shareholder Steve Wolosky, a partner at Olshan Frome Wolosky, sued in the Delaware Court of Chancery on August 27, 2020. His action was consolidated with a second shareholder suit and certified as a class action under the caption The Williams Companies Stockholder Litigation, C.A. No. 2020-0707-KSJM. All twelve directors were named as defendants, including CEO Alan Armstrong and board chair Stephen W. Bergstrom.
Testimony from director Charles I. Cogut, a retired M&A lawyer who conceived the plan, proved damaging. Cogut had proposed a 5% trigger and a one-year moratorium on activism of any kind. At trial he called poison pills “the nuclear weapon of corporate governance” and dismissed industry-standard trigger data from Morgan Stanley as “irrelevant” because the Williams plan “was not a traditional shareholder rights plan.” He testified he expected Armstrong to back the idea because Armstrong had “barely survived” an earlier activist campaign. Most other directors had not read the plan’s key features before the lawsuit was filed, and neither the board’s financial nor its legal advisors had raised the option of a shareholder vote.
The Ruling
On February 26, 2021, Vice Chancellor Kathaleen St. J. McCormick issued an 89-page opinion permanently enjoining the pill. Applying the intermediate scrutiny framework from Unocal Corp. v. Mesa Petroleum Co., she asked whether the board had reasonable grounds to identify a threat and whether the response was proportional.
Two of the board’s three stated justifications failed. Deterring general activism during market uncertainty and guarding against hypothetical short-term agendas were not cognizable threats under Delaware law, because directors cannot justify defensive action by assuming shareholders would “vote erroneously out of ignorance.” Assuming for argument’s sake that the third concern, a rapid “lightning strike” stock accumulation, could be a legitimate objective, the response was still wildly disproportionate. McCormick described the pill as containing “a more extreme combination of features than any pill previously evaluated” by the court and found its terms would “chill a wide variety of anodyne stockholder communications.”
Appeal and Fees
The Delaware Supreme Court affirmed en banc on November 3, 2021, in The Williams Companies, Inc. v. Wolosky, No. 139-2021, adopting the trial court’s reasoning. The pill had also expired on its own terms in March 2021. The court awarded $9.5 million in attorney’s fees to shareholder counsel.
What the Poison Pill Ruling Means for Other Companies
The decision arrived as pandemic-era rights plans proliferated. By late April 2020, more than 50 companies had adopted them; roughly 70% of the March 2020 pills used triggers at or below 10%, and about half included “acting in concert” provisions. Williams was the only S&P 500 company to adopt a pill specifically citing pandemic-related volatility.
McCormick did not invalidate poison pills as a category. She acknowledged that rights plans remain legitimate defensive tools and that closing gaps in federal disclosure rules could be a valid corporate objective. The line she drew was on justification and tailoring: a board must identify a specific, concrete threat rather than pointing to generalized anxiety about activism, and the plan’s terms must fit that threat. Features that depart materially from market norms, like a 5% trigger or a daisy-chain aggregation clause, draw heightened scrutiny and are unlikely to survive it.
The Energy Transfer Merger Fight
Williams’ longest-running dispute involved its collapsed merger with Energy Transfer Equity, later Energy Transfer LP. It took more than seven years to resolve.
The merger agreement, signed September 28, 2015, called for Energy Transfer to acquire Williams for cash and stock in a deal valued at about $38 billion. Closing was conditioned on Energy Transfer’s tax counsel, Latham & Watkins, issuing an opinion that the deal would qualify as a tax-free exchange under Section 721(a) of the Internal Revenue Code.
As energy markets fell in early 2016, Energy Transfer’s leadership looked for an exit. In March 2016 the company closed a private placement of Series A Convertible Preferred Units worth nearly $1 billion, largely to insiders, without Williams’ consent. In April 2016, Latham & Watkins concluded it could not deliver the required tax opinion. Energy Transfer terminated the merger on June 29, 2016.
Years of Litigation
Williams sued in Delaware Chancery Court (C.A. Nos. 12168 and 12337), alleging breach of the merger agreement’s covenants and seeking a $410 million reimbursement fee for a prior deal Williams had unwound to make room for the transaction. In a 2017 ruling, the Chancery Court initially found no breach of the obligation to use commercially reasonable efforts to obtain the tax opinion, though Chief Justice Strine dissented on appeal. The Delaware Supreme Court affirmed the termination but left open whether the preferred offering violated the agreement’s interim operating covenants.
In a July 2020 opinion, the Chancery Court found the preferred offering had breached the merger agreement in multiple ways: it created a fourth class of equity in violation of the capital structure representation, amended Energy Transfer’s partnership agreement without consent, and violated covenants requiring ordinary-course operations. Those breaches triggered the $410 million reimbursement obligation.
The Final Judgment
On October 10, 2023, the Delaware Supreme Court issued a unanimous opinion in Energy Transfer, LP v. The Williams Companies, Inc. (No. 391, 2022), affirming across the board. Energy Transfer owed Williams the $410 million reimbursement, $85.4 million in attorney’s fees (reflecting a 15% contingency arrangement Williams had with Cravath, Swaine & Moore), and compounded interest, bringing the total above $600 million. The court also rejected Energy Transfer’s claim to a $1.48 billion breakup fee, noting Energy Transfer was the party that terminated and that Williams’ board had never formally withdrawn its recommendation in favor of the merger.
The WPZ Merger Securities Class Action
A federal securities case arose from Williams’ 2015 plan to merge with its subsidiary Williams Partners L.P. In Employees’ Retirement System of Rhode Island v. The Williams Companies, Inc. (No. 16-CV-00131, N.D. Okla.), investors who bought Williams Partners units between May 13 and June 19, 2015, alleged Williams executives misled them by describing the subsidiary merger as a “done deal” at an analyst presentation while quietly holding parallel merger talks with Energy Transfer. When the Energy Transfer bid was announced, the Williams Partners merger was terminated and WPZ units dropped roughly 7.6%. Investors alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act.
On March 8, 2017, Judge James H. Payne dismissed the complaint with prejudice, finding the “no risk” comment referred only to the shareholder vote, not the deal as a whole. The Tenth Circuit affirmed on May 11, 2018, holding that Williams had no duty to disclose preliminary merger discussions because no prior public statement was rendered misleading by the omission, and that the early talks with Energy Transfer were not material given how speculative they remained.
The Activist Campaign Behind the Pill
The board’s anxiety about activism traced back to hedge funds Corvex Management LP and Soroban Capital Partners LLC. In December 2013 the two firms disclosed a combined 5.3% stake, the largest single holding in Williams. By February 2014 their collective economic interest approached 10%, worth roughly $2.5 billion in actual shares, and they had hired Moelis & Company as an adviser. They pushed for board seats and strategic deals, including a possible sale. Within two months, Williams agreed to seat two of their nominees. That pressure led to the 2015 subsidiary merger and, after a strategic review, the Energy Transfer agreement later that year. Director Murray D. Smith later testified he considered the campaign “detrimental” to the company, and Cogut cited Armstrong’s difficult experience with it as the reason he expected the CEO to back the 2020 pill.