Softbank backed budget hospitality aggregator OYO said on Friday that it has called off all discussions to acquire smaller rival Zo rooms, two years after it first initiated talks.
The move by OYO prompted Zo, which is backed by US hedge fund Tiger Global, to threaten a legal retaliation on what it calls "re-sailing from the contractual terms after acquiring the entire ZO rooms business by March 2016."
In February 2016, Softbank in its investor presentation had confirmed of OYO's acquisition of ZO without elaborating. Zo, an aggregator of budget rooms had shut its website, indicating that the deal would have been potentially closed.
"In late 2015, OYO explored a potential acquisition of Zo Rooms. The non-binding term sheet for this deal already stands terminated in September 2016. Following this, we tried to identify potential value in their business but could not reach an outcome. We can now confirm that OYO has ended all discussions on the matter," a spokesperson from Oyo said.
Zo had raised $ 32 million from investors led by Tiger Global in August 2015. Since then, the meltdown in venture funding singed several startups that were being forced to look at building value than focus on valuations and triggered a consolidation wave of where stronger players looked to buy smaller ones.
After being dumped, Zo Rooms is feeling cheated by this move and has promised legal retaliation.
"Oyo is resailing from the contractual terms after acquiring the entire ZO rooms business by March 2016. This is not an act of good faith and ZO takes a very serious view of the matter and will take all steps to protect its interests and enforce its rights," a ZO spokesperson said in a statement on Friday.
The proposed all-stock deal would have fetched 4.5 per cent stake to Tiger Global and 2.5 per cent to Zo Rooms founders in Oyo.
Oyo has around 70,000 rooms in 230 cities across India. The company earlier had mentioned about adding 10,000 more rooms to its inventory. Zo's assets include a network of 11,000 rooms in 1,000 hotels across more than 50 cities and towns in India, which would have given Oyo more strength against its present core competitor, Treebo Hotels and other larger online travel companies that have entered the hospitality business.
Last month, it raised $ 250 million in fresh investment led by Softbank and is building a model of managing its own properties.