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.
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