How Activist Crusade Against Williams CEO Ended With Mutiny

  • Six directors called for Armstrong’s ouster in failed vote
  • Energy Transfer takeover failure means Armstrong remains CEO

The bad blood between Williams Cos. chief Alan Armstrong and directors who quit the company’s board on Thursday runs deeper than a $33 billion merger with Energy Transfer Equity LP that just fell apart.

In fact, it goes back years.

Alan Armstrong

Photographer: F. Carter Smith/Bloomberg

Williams shareholders Eric Mandelblatt and Keith Meister had been voicing concerns about Armstrong’s leadership since at least 2013, a person with direct knowledge of the situation said, asking not to be identified because the information isn’t public. They won seats on the company’s board in 2014 and teamed with other directors in an attempt to chart a new course for the oil and gas pipeline giant. They saw Energy Transfer’s offer to buy Williams last year as an opportunity to boost value and a way to fulfill another desire: ousting Armstrong, the person said.

Then the wheels came off. Crude prices continued to plunge and Energy Transfer started backing away from the deal. Last week, Williams lost a court case that allowed Energy Transfer to finally kill it. In the merger’s absence, Williams’ board met and six directors including Mandelblatt and Meister voted to oust Armstrong while he was outside the room. Failing to gain majority support was the last straw. They, along with four other members, resigned, wiping out nearly half the board.

“I can no longer in good conscience serve on a board where a majority of that board was unwilling to make a change that I felt was critical to the future direction of the company — replacing Alan Armstrong as CEO,” Meister wrote in his resignation letter.

Ralph Izzo, Frank T. MacInnis, Steven W. Nance and Laura A. Sugg were the other members to leave the board.

The resignations offer a glimpse into the boardroom politics that played out both as Williams and Energy Transfer hammered out a deal and in the ensuing months as the agreement began to unravel. While Williams said in January that its board was “unanimously” committed to closing the merger, only eight of the 13 directors supported accepting Energy Transfer’s final offer in September, according to Izzo.

Right CEO

Lance Latham, a Williams spokesman, declined to comment, referring to a statement issued Friday on the board resignations. In it, the company said its board had “thoroughly evaluated” its leadership and decided Armstrong, who joined the company 30 years ago as an engineer, “is the right chief executive officer for Williams.”

The directors who voted against Armstrong as CEO didn’t believe he was in the best interest of shareholders, Izzo said in a telephone interview Friday. “I thought the merger would bring about a change in senior management,” he said.

Williams fell almost 5 percent on Friday to close at $20.56. The shares were down 20 percent this year.

Meister, who manages the hedge fund Corvex Management LP, didn’t immediately respond to telephone calls and e-mails for comment on his disagreements with Armstrong’s leadership. He said in his letter to Williams Friday that he, Mandelblatt and other directors had raised “substantial business and operational failures that have occurred over the last five years on Alan’s watch as CEO.”

Judgement, Character

In his own letter, Mandelblatt, a managing partner at Soroban Capital Partners, said he couldn’t “serve on a board that continues to empower a CEO with an abysmal operational and financial track record.” He added that Armstrong lacks the “judgment and character” the company needs to move forward.

Thursday’s board meeting in a New York law office lasted six hours, Izzo said. Armstrong had the chance to make his case for why he should continue to lead Williams and later left the room for the vote, he said.

Board member Murray Smith declined to comment by phone. Sugg, Nance and MacInnis didn’t respond to telephone requests for comment.

In the end, fund manager Skip Aylesworth said, making the decision on leadership was a victory for shareholders.

“The people running Williams now are focused on running a pipeline company,” said Aylesworth, who manages $1.5 billion in holdings at Hennessy Funds from Boston, “and not on trying to make a quick profit in an M&A deal.”

As for the activist investors, the boardroom exodus may not end the fight. A proxy battle is possible, Aylesworth said.

“They may want to take another run at Williams but they may not have the same financial strength to do so,” he said. “Seems to me that they were around an awful long time and they lost quite a bit of money.” 

Mandelblatt and Meister, in their letters of resignation to Williams, hinted they may not be done. "I retain all options going forward to protect shareholders from further value destruction,” Mandelblatt said, while Meister said he would be “more effective from outside the company than within.”

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