Oravel Stays Pvt Ltd, the Gurugram-based company that operates budget hotels chain OYO, has restricted the shareholding limit of SoftBank, its largest investor, to 49.99%.
OYO has executed this through a provision christened “Softbank Standstill Obligation," according to OYO’s regulatory documents viewed by TechCircle.
OYO has restricted SoftBank’s rights to purchase additional shares through the following means: directly or indirectly through its affiliates, equity securities from shareholders or subscribe to any shares offered by the company, should it exceed the standstill limit.
A SoftBank spokesperson declined to comment while queries sent to OYO remained unanswered at the time of filing this report.
SoftBank holds 45-46% stake in OYO, making it the single largest shareholder in the company by various estimates.
If it wants to acquire more shares, OYO has formulated terms and conditions to the extent that SoftBank can do so only with the approval of Ritesh Aggarwal, the founder, along with two-four other investors in the company including venture capital firms Sequoia Capital India, Lightspeed Venture Partners and Greenoaks Capital, subject to them holding a certain shareholding limit.
Likewise, SoftBank or its affiliates cannot transfer or sell its shares to other shareholders whose stake will breach the 49.99% limit. The agreement between OYO and SoftBank was stuck in late 2017 when it raised $850 million from the Japanese internet and media conglomerate.
The development is significant as it comes at a time when OYO is reportedly looking to raise another $1 billion at a valuation of $10-$12.5 billion.
Ride hailing platform Ola (ANI Technologies Pvt Ltd), another SoftBank portfolio company, also executed a similar clause in 2017 where SoftBank and its affiliates would need the approval of Ola founders Bhavish Aggarwal and Ankit Bhati, and the company's board to purchase additional shares from other stakeholders.
Moves like these are being seen as efforts by founders to assert more control on the company and also possibly prevent a hostile takeover. The trend is likely to have been triggered by the failed Flipkart-Snapdeal merger in 2017, which was believed to have been engineered by SoftBank.
Globally, Uber co-founder and former CEO Travis Kalanick had to make his way out of the company after a hostile takeover by investors following disagreements.