Major legal hurdle may put Oyo’s IPO filing in jeopardy

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A botched acquisition deal over six years ago, between Oyo Hotels & Homes and Zostel (Zo Rooms) which was once a competitor has now put a legal hurdle for the hospitality start up which is on its way in filing a draft prospectus for a $1-$1.2 billion dollar Initial Public Offering (IPO), The Economic Times reported. Zo claims that Oyo has breached the binding agreement for a buyout deal dating back six years ago.

Delhi high court will be taking up a plea from Oyo’s side, to grant a stay on an earlier order from a Supreme Court appointed arbitrator who had said that the hospitality startup was in breach of its agreement with Zo Rooms over the proposed acquisition.

In the Supreme Court’s ruling in March, it had said that the term sheet between Oyo and Zo was binding and after a point, the former stopped fulfilling the obligations under the term sheet.

The move could potentially put Oyo on the backburner which is going for an IPO this October. Earlier the publication had reported that the company is planning to file its Draft Red Herring Prospectus (DRHP), this week. But that could be extended to the next week as well, it added.

Oyo not eligible for IPO

In late August, Zo Rooms legal counsel reported that it moved a court application seeking an interim order to restrain or injunct Oyo from altering its shareholding structure or cap table by way of including an IPO.

Citing Oyo’s investments from Microsoft as well as reports on its planned IPO, it said that an issuer is not eligible to make an IPO, if there are any outstanding convertible securities or any other right which would entitle any person with any option to receive equity shares of the issuer.

Further it added that this makes it adequately clear that Oyo shall not be eligible to make an IPO as Zostel shall certainly qualify to have any other right which would entitle Zostel with any option to receive equity shares of Oyo, the publication said.

So, ideally till such time its challenges to the award is decided, Oyo should not be permitted to file the DRHP, it added.

Oyo’s legal counsel on its behalf said that, Zostel’s petition seeking reliefs are beyond the scope of the award.

It also added that the award does not provide any relief to Zostel or to its shareholders that entitles them to seek Oyo to freeze its shareholding pattern in any manner. The hospitality company’s stand is that the petition is not maintainable without merit in any case.