‘Deal with Zostel was cancelled due to various issues, including non-completion of due diligence’
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Bengaluru: Oravel Stays Ltd, which runs Oyo hotels, 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.
The deal was called off because of various issues, including “non-completion of the due diligence process" and “transaction structuring" raised by Zostel, Oravel Stays said in its written response to Sebi on 22 October.
This comes just weeks after Zostel Hospitality Pvt. Ltd, which owns Zostel Hostels and ZO Rooms, wrote to Sebi on 11 October urging it to reject the draft prospectus filed by hospitality unicorn Oravel Stays.
Zostel said Oyo’s initial public offering “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 the company’s (Oyo’s) due diligence concerns were not resolved," Oyo alleged in its response to Sebi.
Mint has reviewed a copy of the letter sent by Oyo to Sebi.
ZO Rooms and Oyo had entered into talks for a merger in 2015, executing an agreement on 26 November that year, according to Zostel Hospitality. 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 had alleged earlier.
In March, an arbitral tribunal ruled in favour of Zostel, calling the term sheet that promised ZO Rooms’ shareholders 7% of hospitality unicorn Oyo as a binding document.
On 10 April, Oyo challenged the tribunal’s decision and sought a stay on the implementation of the award from the Delhi high court.
Oyo, in its response, stated that it had entered into a ‘non-binding term sheet’ on 26 November 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 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 a deplorable attempt to adversely impact the proposed offer and coerce the company into granting Zostel’s shareholders 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 6 March 2021 [...]," Oyo said in its 119-page response to Sebi.
At the start of this month, Oravel Stays filed the paperwork for its ₹8,430 crore share sale 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.
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