By Corrie Driebusch and Rebecca Elliott
An influential proxy adviser has taken the unusual step of urging shareholders to withhold votes for the chairman of Williams Cos. after the pipeline operator adopted a poison pill to fend off unwanted suitors.
Institutional Shareholder Services Inc., or ISS, recommends against supporting Williams Chairman Stephen Bergstrom in director elections at the company's annual meeting April 28, according to a client note from the proxy adviser that was viewed by The Wall Street Journal. The report cites the "highly restrictive" nature of the pill, which kicks in if an unwanted shareholder buys a stake of just 5%.
Williams, whose pipelines transport oil and natural gas, on March 19 joined a swell of more than 20 companies adopting poison pills as their shares plunge amid the coronavirus pandemic.
Poison pills are antitakeover measures that can also be used to neutralize shareholder activists. When an outsider buys up more than a certain amount of the stock of a company with one, new shares flood the market and make it more expensive to acquire a controlling stake. Many investors frown on poison pills because they can insulate companies from sometimes-beneficial outside forces and suitors who might offer a significant takeover premium.
The threshold for the Williams pill, which will remain in effect until next March, is exceptionally low compared with others. According to ISS, of the 14 companies that adopted poison pills between March 13 and March 30, all of the others chose triggers ranging from 10% to 20%. It calls the threshold for the Williams pill "extremely rare."
The proxy firm adds that it recognizes this is a "unique time" and it doesn't take a broad stand against implementing poison pills in this environment. ISS recommends a "cautionary" vote for all other Williams directors, including Chief Executive Alan Armstrong.
A Williams spokeswoman called the ISS recommendation "perplexing," saying in a written statement that the company's board acted in the best interest of shareholders and that the 5% trigger level isn't "highly restrictive." She added that Williams reached out to major shareholders after adopting the pill and none of them indicated that they would vote against any board members in the coming election.
The Tulsa, Okla., company has said it adopted the pill in response to its share-price decline, not because of a specific threat.
Williams' stock fell more than 25% in March and was down more than 40% since the start of the year as of Monday's close, battered by the pandemic as well as a sharp decline in energy prices. The company's market capitalization was about $16 billion as of Monday.
Glass Lewis & Co., another major proxy adviser, has said it doesn't believe shareholders ought to withhold votes from any board members over the pill at this time.
Mr. Bergstrom is running unopposed on the director slate, so there is little to no chance of his removal. Last year, nearly 99% of investors voted for him, according to the ISS report. However, ISS carries a lot of clout with big institutional shareholders and a significant vote against the chairman would send a message to the company as well as any others considering a similar move.
Sabastian Niles, a partner at law firm Wachtell, Lipton, Rosen & Katz who advises corporate clients on activism and takeover defense, said he tells companies that their pills should be designed with circumstances that are specific to them in mind.
"ISS and institutional investors are not writing a blank check and companies should not reflexively rush to adopt a pill prematurely and without good reason," he said.
ISS criticizes Williams for what it says is a failure to consider alternatives, such as a shorter-term pill or one with a higher trigger level, and for not using its annual meeting to seek shareholder ratification of the plan.
Write to Corrie Driebusch at firstname.lastname@example.org and Rebecca Elliott at email@example.com