Zostel had said Oyo’s IPO was ‘non-maintainable’ as the company’s capital structure was not ‘final.’
In its letter to Sebi sent on October 28, and accessed by ET, Oyo has written that no restriction has been imposed on Oyo from changing its shareholding pattern either by the Supreme Court-appointed arbitrator’s award in the matter or by Delhi High Court. “Further, no stay has been granted by the Delhi High Court on the proposed offer despite a prayer to this effect by Zostel,” Oyo wrote in its letter to Sebi.
According to Zostel Hospitality, which runs Zostel hostels and ZO Rooms, ZO Rooms and Oyo had entered into talks in 2015. Zo Rooms had alleged that Oyo had breached the term sheet signed on November 26, 2015, by not executing the deal, and that it had promised shareholders of Zo Rooms a 7% stake in the acquiring company.
A court-appointed arbitrator had ruled that Oyo was bound by the terms agreed upon with Zo which required the company to cede up to 7% of its equity.
Oyo is challenging the arbitrator’s award in the Delhi High Court and has rejected Zostel’s claim that its shareholders ought to receive a 7% stake.
Oyo wrote in its letter to Sebi that In September 2016, both parties mutually agreed to terminate the non-binding term sheet due to various issues, including non-completion of the due diligence process and transaction structuring raised by Zostel. Oyo also wrote that certain assets, which were to be transferred to the company as part of the proposed transaction were never transferred by Zostel and in its understanding, continue to be retained.
“During the course of the arbitration or otherwise, Zostel failed to provide any evidence to substantiate its claim that its assets/business was transferred to the company….The financial statements of Zostel show that as of 31.03.2016, Zostel had a huge set of assets which shows that Zostel had not transferred anything to the company,” Oyo wrote in its letter to Sebi.
Oyo also mentioned in its letter that domain names, app package rights, codebase of CRS, ZoRooms and Ozonet App, Zo Rooms customer email/app notification tool access, Twitter handle, Facebook and Instagram pages, Tripadvisor, Google listing access, hotel description/content for all hotels were among the things not transferred to the company.
The company also stated that in furtherance of its due diligence for the proposed transaction with Zostel, the company had shared certain data with Oyo which was ‘incomplete’ and replete with ‘inaccuracies.’ Oyo has written that despite repeated requests, accurate data was not provided and the company’s due diligence concerns were not resolved. Zostel in its letter to Sebi had stated that Oyo’s DRHP was replete with material omissions and blatant misstatements.
In its response to Sebi, Oyo stated that in September 2015, one of the founders of Zostel, Dharamveer Singh Chauhan had approached Oyo’s founder Ritesh Agarwal with the proposal that the company acquires the business of Zostel.
But according to emails received by Oyo in October 2015, Zostel had only two months more of cash reserves left to fund its business and was running into losses.
The company also mentioned that in January 2016, Zostel unilaterally shut down its mobile booking application, which was one of the most important assets for an online booking company. “Zostel has admitted during the arbitration that their mobile applications were never transferred to the company,” Oyo wrote and went on to cite Zostel’s financial results as of March 31, 2020, which show Orios Venture Partners Fund I and Venture Partners Fund II jointly hold 50.30% of the share capital of Zostel on a fully diluted basis.
Oyo said the non-binding term sheet was terminated by Zostel pursuant to an email dated September 17, 2016, and agreed to by the company pursuant to an email dated September 19, 2016. Both parties commenced negotiations on new terms, which were never finalised, it stated.
