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When a stockholder rights plan falls outside the range of reasonableness the board of directors of the corporation fail to meet their burden of proof under the second prong of the inquiry for determining the directors' compliance with their fiduciary duties. The board bears the burden to show that the poison pill is reasonable.
Williams was a publicly-traded Delaware corporation. It was an Oklahoma-based natural gas company that owns and operates natural gas infrastructure assets, including miles of pipelines and processing facilities, and handles approximately 30% of the nation's natural gas volumes. Williams had a share price of approximately $22–$24 in the months preceding the pandemic. Due to the rapid spread of COVID-19 and the resulting market volatility, Williams’s shares fell to around $18 by the end of February. In March, an oil price war between Saudi Arabia and Russia sent U.S. energy stocks tumbling and further exacerbated Williams’s low share price. Williams’s stock price had plummeted to approximately $11, a 55% decrease from January 2020. The Williams board, in response to the alarmingly low share price, decided to adopt an extreme poison pill. Director defendants, the board, implemented the pill because it feared that activist investors would exploit the company’s low share price to implement a change in corporate strategy. Plaintiffs, Steven Wolosky and City of St. Clair Shores Police and Fire Retirement System, filed this litigation. The operative complaint asserts a direct claim for breach of fiduciary duty against the Director Defendants seeking declaratory and injunctive relief regarding the validity and enforceability of the Plan.
Was the stockholder rights plan valid and enforceable?
Defendants also failed to prove that the Plan falls within the range of reasonable responses hence the Plan was invalid. Also, judgment was entered declaring the stockholder rights plan unenforceable and permanently enjoining the continued operation of the plan. And having concluded that the Plan was unenforceable because the Director Defendants breached their fiduciary duties under Unocal when adopting it, this decision need not resolve whether the Director Defendants independently breached their fiduciary duties by failing to redeem the Plan.