TARGET
Retailer Drops India Textile Supplier
NEW DELHI -- U.S. retailer Target Corp. said it was severing
ties with one of India's largest textile suppliers, Welspun India
Ltd., after concluding the company sold it phony Egyptian cotton
sheets.
Shares of Welspun, widely touted as an Indian-manufacturing
success story, fell 20%, the daily limit, on Monday morning before
trading of the stock was temporarily suspended. It is expected to
resume Tuesday.
Target, one of Welspun's largest customers, on Friday alleged
the Mumbai-based company had violated supply contracts by using
non-Egyptian cotton. Cotton sourced in Egypt is more expensive and
considered softer and more absorbent than other varieties.
"This is an issue of highest priority for us and we will take
all necessary steps to address it," Welspun said. Welspun said it
has commissioned "one of the Big Four" accounting firms -- a term
used to refer to Deloitte, PricewaterhouseCoopers, Ernst &
Young and KPMG -- to investigate "our supply systems and
processes."
The case underscores the challenges of monitoring a global
supply chain. Large retailers often rely on a vast network of
suppliers in developing countries to manufacture the goods they
sell. Welspun began as a small silk mill in India in 1985 and
quickly blossomed into one of Asia's largest textile makers,
supplying sheets, rugs and pillowcases to some of the biggest names
in retail including Wal-Mart Stores Inc., Bed Bath & Beyond
Inc., J.C. Penney Co. and Macy's Inc.
Welspun's management held a conference call with investors to
try to allay fears before markets in India opened Monday, according
to an analyst who participated.
American retailers accounted for two-thirds of Welspun's $878
million in sales for the year ended March 31, according to
Mumbai-based brokerage Edelweiss Securities. Edelweiss said Target
accounted for about 10% of Welspun's sales.
"It's too early to say what went wrong and where. But, yes, a
concern now is that other big clients may begin to look into
Welspun's practices. That is a big concern," said Sumant Kumar, an
equity research analyst at Elara Capital PLC.
Target said it has pulled the Welspun products from its stores
and had begun to offer refunds to people who had purchased
them.
Welspun's conduct "was contrary to the high ethical standards to
which we hold ourselves," Target said.
--Preetika Rana
UNIVISION COMMUNICATIONS
Gawker's Denton To Get $400,000
Gawker Media Group's new owner, Univision Communications Inc.,
would pay Gawker's founder $16,666 a month for the next two years
in exchange for a promise not to work for the gossip site's
rivals.
Nick Denton would be paid about $400,000 by Univision, according
to a noncompete pact filed with the U.S. Bankruptcy Court in New
York.
The Spanish-language broadcaster last week won a bankruptcy
auction for Gawker with a $135 million bid, and then said it was
shutting down the site.
The company insisted on the noncompete agreement with Mr.
Denton, who earned $500,000 a year at Gawker, as a condition of the
sale.
Univison intends to merge the sites Deadspin, Lifehacker,
Gizmodo, Jalopnik, Jezebel and Kotaku into its Fusion Media Group.
But the company said it wouldn't operate gawker.com going
forward.
Under the pact, Mr. Denton won't "associate with any business
enterprise that engages in the business" in the U.S., Puerto Rico
or Hungary, without Univision's consent.
In a letter to Gawker's staff last week announcing the
mothballing of gawker.com, Mr. Denton said he was getting " out of
the news and gossip business."
Mr. Denton has told friends he is interested in creating new
online discussion forums, according to a person familiar with his
thinking, and those ventures wouldn't be affected by the noncompete
agreement.
Gawker Media filed for chapter 11 bankruptcy protection in June
after a Florida jury awarded former professional wrestler Hulk
Hogan, whose real name is Terry Bollea, $140 million. Mr. Bollea
sued Gawker, Mr. Denton and another editor for invasion of privacy
after the gossip site published a story featuring video of the
former wrestler having sex.
Shortly before Gawker filed for bankruptcy, it emerged that many
of the legal struggles facing the company had been secretly backed
by Silicon Valley billionaire and investor Peter Thiel, who
acknowledged financing the cases brought by Mr. Bollea and
others.
Mr. Thiel, who had been outed as gay in 2007 by Gawker's
now-defunct Valleywag blog, said his intention was to stop Gawker
from profiting off exposing details of people's private lives.
Mr. Denton personally is liable for $10 million of the $140
million judgment and jointly liable, along with former Gawker
editor A.J. Daulerio, for a further $115 million.
Claiming he was unable to pay the judgment, Mr. Denton, a
British-born and Oxford-educated journalist who founded Gawker out
of his apartment in 2002, was forced to file for personal
bankruptcy this month.
His only two assets, he says, are his 30% stake in Gawker and an
apartment in Manhattan, which he lists at a combined value of less
than $50 million.
Mr. Denton is asking U.S. Bankruptcy Judge Stuart M. Bernstein
to sign off on his noncompete pact with Univison before Sept. 9,
the expected closing date of the sale.
--Patrick Fitzgerald
ASTRAZENECA
Alzheimer's Drug Goes on Fast Track
LONDON -- AstraZeneca PLC said Monday that the Alzheimer's drug
it is codeveloping with Eli Lilly & Co. has received fast-track
designation from the U.S. Food and Drug Administration, a status
designed to speed up the development of promising new
medicines.
The drug, dubbed AZD3293, is part of a hot new class of
Alzheimer's drugs called BACE inhibitors which act to prevent the
formation of a substance known as amyloid, whose buildup in the
brain is thought to be the main cause of the degenerative
disease.
The FDA awards fast-track status to drugs it believes could
fulfill an unmet need in a serious condition. It means AstraZeneca
will have increased access to officials at the agency while
developing the drug, to minimize delays.
Earlier this year AstraZeneca and Lilly said they would progress
the drug to the final stage of testing in patients with early stage
Alzheimer's.
They also plan to start testing the drug in patients with mild
Alzheimer's in a separate trial.
BACE inhibitors are the latest glimmer of hope in a field
littered by failures, but they could stumble in later-stage
development. Eli Lilly scrapped a BACE inhibitor, LY2886721, in
2013 over concerns that the drug could affect liver function.
Research recently released by the trade group Pharmaceutical
Research & Manufacturers of America showed there were 123
Alzheimer's drug failures between 1998 and 2014, and just four
medicines approved.
The high level of risk involved in Alzheimer's research partly
drove Astra's decision to collaborate with Lilly, which has a
longer history of developing drugs for the disease. The pair struck
a risk-and-reward sharing deal in 2014 that handed Lilly the
leading role in designing and running the clinical trials for the
drug, previously developed solely by Astra.
The two will share the costs of development, and, if the drug is
successful, future revenues, equally.
Lilly also agreed to a series of payments to AstraZeneca as the
drug progresses through various milestones.
The deal forms part of AstraZeneca Chief Executive Pascal
Soriot's "externalization" strategy to fully or partly offload
research programs that fall outside its core areas of
expertise.
The high failure rate of research in Alzheimer's disease has led
to other partnerships in the industry: last year Novartis AG struck
a deal with Amgen Inc.
An estimated 5.3 million Americans suffer from the disease,
according to the Alzheimer's Association, a nonprofit organization.
Current treatments can help manage symptoms, but there is no
cure.
The market for Alzheimer's drugs stood at $4.9 billion in 2013
and is expected to reach $13.3 billion by 2023, according to
GlobalData, a research and consulting firm.
--Denise Roland
VOLKSWAGEN
Auto Maker to Cut German Work Hours
Volkswagen AG said work hours would be cut for roughly 27,700
employees as a result of a dispute with suppliers that has
disrupted production at several plants in Germany.
Production halts have hit Volkswagen's main plant in Wolfsburg,
Germany, most severely, where 10,000 workers are affected, the car
maker said. Plants in Emden, Zwickau, Kassel, Salzgitter and
Braunschweig also will work reduced hours in the coming days.
Volkswagen warned that it couldn't foresee further developments,
but according to its current planning, most stoppages would end as
of this weekend. In Kassel and Salzgitter, production measures will
end early next week.
Volkswagen, still reeling from an emissions scandal that has
cost it billions of dollars, last week said a shortfall in seating
and gearbox components meant it had to adjust production for some
models, including the Golf and Passat.
Analysts said a weeklong suspension of Golf and Passat
production could cost Volkswagen between EUR50 million ($56.6
million) and EUR100 million in operating profit, but stressed that
various factors made estimates tricky.
Volkswagen has suggested, for example, that it could use a
short-time work program for employees affected by the stoppage,
which would mitigate any negative earnings impact. Short-time work
is a German labor program that partly compensates workers for lost
hours. The company couldn't be reached immediately for comment on
the potential cost of strikes.
However, a production slowdown may not be altogether unwelcome
at Volkswagen, which plans to scratch a further eight days of Golf
production in the fourth quarter to balance annual output, it said
during the weekend.
The auto maker and two suppliers -- Car Trim and ES
Automobilguss -- resumed negotiations Monday to resolve the matter
after the suppliers cut delivery. The suppliers denied
responsibility for the situation, saying Volkswagen canceled
contracts without explanation or compensation and the decision to
halt delivery was taken to protect their workforces.
"This is really a rare incident as suppliers typically want to
avoid stopping the production lines at a manufacturer," said
Commerzbank automotive analyst Sascha Gommel.
Germany's Economics Ministry on Monday urged Volkswagen and the
suppliers to resolve the dispute quickly.
"This is about thousands of jobs that could be affected by
shorter working hours," a ministry spokesman said. "There's a
responsibility to approach these issues as constructively as
possible and resolve them as constructively as possible."
Volkswagen employs 276,000 people in Germany, 73,000 of them in
Wolfsburg. The company is still sorting out financial and strategic
issues caused by a scandal that erupted nearly a year ago when U.S.
authorities disclosed Volkswagen rigged vehicles with software that
let them perform better in pollution tests than on the road.
Volkswagen later said the software was installed in some 11 million
vehicles world-wide.
Despite the German output disruptions, the head of Volkswagen's
works council, Bernd Osterloh, said he wasn't concerned that the
current wrangle with suppliers would lead to job cuts.
--Sarah Sloat
(END) Dow Jones Newswires
August 23, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.