Oravel Stays Ltd., which operates brand Oyo, has hit back at Zostel Hospitality Pvt. Ltd. and filed its response to markets regulator Securities and Exchange Board of India (Sebi), stating that the two parties had ‘mutually agreed’ to ‘terminate’ the acquisition deal in 2016.
In its written response to Sebi on October 22, Oravel Stays stated that the deal was called off due to various issues, including ‘non-completion of the due diligence process’ and ‘transaction structuring’ raised by Zostel.
Zostel Hospitality Pvt. Ltd owns Zostel Hostels and ZO Rooms.
This comes just weeks after Zostel wrote to Sebi on October 11 urging it to reject the draft prospectus filed by hospitality unicorn Oravel Stays Ltd. Citing the reason for its request, Zostel said Oyo’s “IPO is non-maintainable as Oravel’s capital structure is not final.
“In furtherance of the due diligence for the proposed transaction, Zostel shared certain data with the Company (Oyo). However, the data provided by Zostel was incomplete and replete with inaccuracies. Despite repeated requests, accurate data was not provided and Company’s (Oyo’s) due diligence concerns were not resolved,” alleged Oyo in its response to Sebi.
According to Zostel Hospitality, ZO Rooms and Oyo had entered into talks for a merger in 2015, executing an agreement on 26 November that year. ZO Rooms completed its obligation under the agreement and transferred the business, but Oyo failed to transfer 7% to the ZO Room’s shareholder, Zostel alleged earlier.
In March, an arbitral tribunal ruled in favour of Zostel, calling the term sheet which promised ZO Rooms’ shareholders 7% of hospitality unicorn Oyo as a binding document.
On 10 April, Oyo challenged the arbitral tribunal decision and sought a stay on the implementation of the award with the Delhi high court.
Oyo in its response stated that it had entered into a ‘non-binding term sheet’ dated November 26, 2015, which was ‘expressly agreed’ to be ‘non-binding’. Oyo also added that the ‘non-binding term sheet’ laid down clearly that parties will only be bound to consummate the transaction if there was a consensus on all commercial and legal aspects of the transaction.
“At the outset we deny in to all the allegations levelled by you against us in the Complaint. The Complaint is replete with false statements and self-serving half truths, and is deplorable attempt to adversely impact the proposed Offer and coerce the company into granting Zostel’s shareholders and entitlement to shareholding in the company that they failed to obtain in the arbitration proceedings between Zostel, its founders and shareholders and the Company and the arbitral award dated March 6, 2021 [...],” said Oyo in its 119-page response to Sebi.
At the start of this month, Oravel Stays had filed the paperwork for its ₹8,430 crore initial public offering (IPO) that is expected to value the operator of the hospitality unicorn Oyo Hotels and Homes at least at $10 billion.
The initial share sale will see some of its investors, including Japan’s SoftBank Group, sell a part of their stake. The issue will comprise a primary capital raise of around ₹7,000 crore and stake sales by investors worth ₹ 1,430 crore, it said as a part of its draft prospectus.