OYO IPO: A sour deal with Zostel six years ago is back to haunt Ritesh Agarwal’s firm

A deal between OYO Hotels and Rooms and rival Zostel that fell apart six years ago is now back to haunt the Ritesh Agarwal-founded firm ahead of its $1.2 billion initial public offering. OYO is aiming to go public through a new share issue and offer for sale from existing shareholders. It is planning to file its draft initial public offering documents this month, as per reports. However, Zostel filed a petition with the Delhi High Court to stop OYO from changing its shareholder structure, even through an IPO.

The 2015 deal included OYO trying to buy some of Zostel’s businesses and in turn Zostel getting a 7 per cent stake in OYO. But the transaction fell apart and a long-running legal battle ensued over the terms. OYO argued that they had yet not reached any definitive agreement.

The Supreme Court appointed an arbitrator in 2018, who ruled in March this year that the terms of the deal were binding, indicating that Zostel is entitled to its 7 per cent stake in OYO. The arbitrator said that Zostel "did everything within their control to complete their obligations" but OYO breached its obligations by failing to execute a definitive agreement.
Agarwal’s hospitality firm has challenged the arbitration order in the Delhi High Court.

OYO’s legal counsel said in a statement on Wednesday, “Till the time that parties do not come to an agreement on the terms of the definitive agreements and the same are not executed, no right whatsoever arises in favour of any party for any type of shares to be issued in OYO."

Zostel co-founder Paavan Nanda acknowledged that the company is opposing any attempt by OYO to alter its shareholding structure, as mentioned in a report in Reuters.

Zostel counsel requested 7 per cent stake to be kept in escrow but OYO’s lawyers objected. The matter will be heard in detail on October 7.

(With Reuters inputs)

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