Exclusive: Zostel's petition in Delhi HC adds a legal twist to Oyo's IPO saga
Oyo Hotels & Homes, which is making ready to file a draught prospectus for a $1.2-$1.2 billion initial public offering (IPO), has a legal hurdle ahead that's being posed by former rival Zostel (Zo Rooms) over a bungled acquisition deal that is set to come back up for a court hearing on Wednesday.
Zo, a hospitality startup that claims Oyo is in breach of a binding agreement for an acquisition deal qualitative analysis that dates back six years, has now approached the Delhi judicial system seeking redress in a move that could be a hand tool in the works for the IPO-bound Oyo.
Speaking to ET, the legal counsel for Zo Rooms—TMT Law Practice—said it affected a court application in late August, "seeking an Associate in Nursing interim order to restrain or injunct Oyo from modifying its material possession structure or cap table together with the manner of Associate in Nursing commercialism."
The Delhi HC, which is anticipated to listen to the matter on Wednesday, will also take up a plea by Oyo to grant an associate in nursing degree after an earlier order from a Supreme Court-appointed intercessor United Nations agency had found that Oyo was in breach of its agreement with smaller rival Zo Rooms over the projected acquisition. The pleas are clubbed for a hearing on Wednesday.
To some extent, Oyo stopped taking steps to fulfil obligations under the term sheet.
However, it may spill over to successive weeks.
Oyo, since the dispute landed in court, has maintained that the controversial term sheet was non-binding. It's challenging the arbitrator’s order, with the hearing currently expected to take place on Wednesday. The arbitrator’s order had the same Zo being "entitled" to form "appropriate proceedings' for its rights and working towards execution of the "definitive agreement" with Oyo for itself and its shareholders.
In its plea to the Delhi HC in August, Zo Rooms cited Oyo’s investments from Microsoft further as reports on its planned commercialism. "An institution shall not be eligible to form an Associate in Nursing initial public provision if there are any outstanding convertible securities or any other rights which might entitle a person with any choice to receive equity shares of the institution."
"This makes it adequately clear that Oyo shall not be eligible to form Associate in Nursing commercialism as Zostel (Zo Rooms) shall definitely qualify to own "any alternative right which might entitle Zostel with any choice to receive equity shares of Oyo," Zo's legal counsel told ET.
Ideally, therefore, 'Oyo mustn't be permissible to file the DRHP until such time that its challenge to the award is set," he added.
In turn, Oyo’s legal counsel told ET that the petition by Zostel has been filed "seeking relief that is beyond the scope of the Award."
"The Award doesn't give any relief to Zostel or its shareholders that entitles them to hunt Oyo to freeze its material possession pattern, in any manner whatever. "Oyo's stand is that this petition isn't rectifiable and, in any case, not advantageous," it said.
The Old Dispute
The dispute between SoftBank-backed Oyo (at one time Oravel Stays) and Zo Rooms goes back to 2015, once the two corporations had begun negotiations for a merger. However, the talks fell through. This eventually leads to the crystal rectifier to the arbitration.
Zo, citing the arbitrator's order, has same it's eligible for a seven-membered stake in Oravel. Oyo has invariably denied the validity of any such claims. ET rumoured last week that Oyo is aiming at a valuation of around $12-$15 billion within commercialism. Oyo’s last valuation was $9.6 billion in September and a seven-membered stake in it'd be valued at around $672 million.
Oyo in its statement to ET denied Zo’s comments before the hearing and said, "After multiple tries within the courts and arbitration assembly, Zostel has continued its attempts to form a wrong perception". The statement from Oyo shows a pattern of Zostel attempting to distract Oyo from following its business goals.
Responding to ET’s queries on Zo’s claims to stall Oyo’s DRHP, the personal representative for Oyo declared that this was incorrect and ‘totally deceptive and supported surmises’.
"Without considering the grounds of challenge by Oyo of the award, the award in itself has not issued Zostel or any of its shareholders any shares in Oyo," the person said.
As per Oyo’s legal counsel, "the sole relief, excluding prices, that has been granted to Zostel is to initiate "appropriate proceedings" to execute definitive agreements and obtain performance of the Term Sheet," the statement noted.
"As such, until the time that parties don't come back to Associate in Nursing agreement on the terms of the definitive agreements and therefore the same aren't dead, no right whatever arises in favour of any party for any style of shares to be issued in Oyo."
The company reiterated that the complete method (acquisition) was just at the stage of alpha discussions, and no definitive agreements were finalised or dead between the parties.