Why would they ever do that? That isn't going to standup in court, you can't just take over another company with a line in your TOS

Why would they? Owning the domain doesn't mean they own a business. They would just kill their own source of income. (And any potential future income from that company)

The inevitable fallout?

I imagine those steps are something they hope to only ever invoke on clearly illegal enterprises.

That specific "we can do whatever" language is only for domains that you didn't renew on time.

They have some separate terms that allow similar things, in specified categories of abuse and related stuff.