Zostel-Oyo tussle intensifies

The ongoing tussle between Zostel Hospitality Pvt Ltd and Oyo has intensified, with the former sending a formal complaint to the Securities Exchange Board of India seeking the suspension of the latter’s initial public offering.

Zostel has alleged that Oyo has given inadequate disclosures and misrepresented facts in the Draft Red Herring Prospectus (DRHP) filed on October 1.

“The DRHP is replete with material omissions and blatant misstatements, intended to mislead the public into investing into Oravel’s shares without appreciation of the risks involved,” said Zostel in the complaint letter.

Both companies have been fighting against each other over a 2015 deal under which Zostel claimed Oyo had acquired the company, with Oyo maintaining that the deal fell through after due diligence and that it has plenty of reasons for not acquiring the company.

Merger talks

Zostel and Oyo had entered into talks for a merger in 2015, executing an agreement on November 26, 2015. Zostel claims that it completed its obligation under the agreement and transferred the business, but Oyo failed to transfer 7 per cent to the Zostel shareholder.

“Zostel’s shareholders have a right to get issued in their favour, 7 per cent of the equity securities of Oravel (Oyo’s parent firm).

“Oravel has failed to grant the same and, hence, is prohibited from making any public offer of its shares,” said Zostel in the letter to SEBI.

While Oyo did not comment on the latest salvo by Zostel, in a statement issued on October 8, it said: “Oyo condemns Zostel’s self-serving misrepresentation of case facts, and it is an attempt to overreach Delhi High Court proceedings.

“After multiple attempts in the courts and arbitration tribunal, Zostel’s communication shows unnecessary and repetitive efforts to create a wrong perception. This shows a pattern of Zostel trying to distract Oyo from pursuing its business goals.

“The repeated reliefs being sought are not consistent with an award by the Arbitration Tribunal from March 2021, which has not granted any award for issue of any shareholding in Oyo to Zostel. It had merely given them the direction for seeking specific performance of the non-binding term sheet.

“The Tribunal had ruled and categorically acknowledged that the definitive agreements were neither finalised nor agreed upon. Oyo reiterates that the entire process was merely at the stage of exploratory discussions, and no definitive agreements were finalised or executed between the parties,” it added.

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