Ola Electric has pivoted to become a full-stack electric scooter OEM, but a recent acquisition in the Netherlands comes back to haunt it
Netherlands-based Etergo, which was acquired by Ola in a distress sale to give wings to the Indian company’s EV dream, has angered its minority investors due to discriminatory share buyback
European investors are crying foul and preparing to take Etergo and its parent company Ola to court; did Ola’s due diligence team fail to deliver?
When Ola Electric, the EV arm of the ride-sharing unicorn Ola (ANI Technologies), announced in May 2020 that it would start operating as a full-stack manufacturer of electric two-wheelers (2W), the euphoria was palpable. News reports claim that Ola Electric is deliberating with electric vehicle (EV) equipment manufacturers and also holding talks with several state governments to set up a 100-acre manufacturing unit, with a production capacity of 1 million scooters a year. Initially, these two-wheelers are expected to be manufactured in the Netherlands. And Ola is reportedly planning to ship these to European markets and India in the early months of 2021.“The company (Etergo) let itself be tied into a negotiation with a potential investor that waited until the cash ran out to pick up the pieces out of the rubble for near to nothing. And (the) management is retained and properly incentivised for the next run. So, early investors lost nearly all,” says one of the early investors mentioned above.“…It is important to note that Stichting Administratiekantoor Eterrgo II (STAK), as a minority shareholder, was not in a position to help negotiate a higher purchase price. It is OLA who made the final offer which was formally approved by the shareholders to prevent bankruptcy. The STAK had no other option but to participate in the transaction…The shares have been transferred to OLA. It is OLA who paid the STAK and other shareholders the purchase price of €0 .0179986 per share,” reads another email sent to one of the investors who purchased shares in Etergo through crowdfunding.“If you are making an acquisition where there are minority shareholders, they should get the same price per share just like the majority shareholders even under the STAK model. However, this crowdfunding feature can be misused as STAK shareholders have no voting rights. Whether or not Ola-Etergo misused this clause is subject to a debate,” says a Bengaluru-based lawyer who advises companies on funding and mergers and acquisitions, and does not want to be named.
These developments at Ola Electric may seem promising, but behind it lies an acquisition it made recently in the Netherlands, which is a tale of multiple hits and misses, an erosion of (minority) investors’ wealth and trust, and an alleged charge of defrauding that may soon reach a court of law. Did Ola conduct its due diligence before grabbing the EV firm? But before we go into that, let us look at the beginning of the whole saga. (more on this later).