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That seems even worse then; it's effectively the board voting to steal shares from a major shareholder in order to increase their own relative stake in the company. How is that not illegal?

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What used to happen before there were poison pills, was a corporate raider would say "I want to buy this company, and I offer 100$ per share. If not everybody agrees to sell to me, but I get more the 50% of shares I will replace the board and then offer a merger in which 30$ per share are offered. The board (which I just instituted) will agree to my offer." That means after a raider has the majority of shares he can stiff the remaining minority shareholders. Of course people knew this on the initial offer and were therefore pressured to accept it or risk losing a lot of money later. I assume you agree that making this possible is not in the interest of sharedholders (or companies), although it made some people very wealthy back in the days. The Delaware Supreme Court considered, that such an extreme threat to shareholders justified extreme countermeasures such as the poison pill. (All of the above just tries to paraphrase Matt Levine, which I can really recommend if one wants to understand such things.)

Why would the newly installed board be allowed to allow a merger with such a low number?

This seems to be the root problem, and it can happen in other scenarios when a coalition controls 51% of the shares. The law needs to protect the minority shareholders.

This poison pill “solution” is just theft.

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