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Sycamore Partners, liquidators bid on bankrupt U.S. teen retailer Aeropostale

NEW YORK Bankrupt U.S. teen retailer Aeropostale Inc (AROPQ.PK) received bids this week for its business from private equity firm Sycamore Partners, as well as liquidators, firms that wind down businesses, according to people familiar with the matter.

Investment firm Versa Capital Management LLC did not submit a bid for the business, the people said. Versa had been preparing a stalking horse offer for Aeropostale as a going concern business, and the retailer had received court approval to pay some of the expenses incurred by Versa in putting together the proposal.

A U.S. bankruptcy court judge on Friday issued a decision siding with Sycamore in its fight with Aeropostale, who accused the firm of conducting a “loan to own” scheme and pushing the retailer into bankruptcy. Aeropostale had asked the judge to bar Sycamore from using the $150 million it is owed as credit to bid in the auction, but the judge denied that request.

Sycamore and Versa declined to comment. The sources were not identified because they were not authorized to speak to the media.

In a statement, Aeropostale said it is disappointed with the court’s decision.

“Aeropostale stands by the accuracy and truthfulness of everything said and documented by it during the proceedings,” the company said.

Bids for the company were due on Thursday, and an auction is scheduled to be held on Monday, Aug. 29. It is unclear what Sycamore’s plans are for the business, should it win the auction.

Aeropostale also received bids for some of its leases and its business, a shoe and apparel shopping site, said one of the people.

Aeropostale filed for bankruptcy in May amid slumping sales and intense competition from fast fashion retailers.

At least five U.S. teen retailers, including Wet Seal LLC and Pacific Sunwear of California Inc (PSUNQ.PK), have filed for bankruptcy in the past two years, as the spending habits of young people shift and they visit malls less often.

(Reporting by Jessica DiNapoli; Editing by Dan Grebler, Bernard Orr)

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St. Jude says report by short sellers ‘false and misleading’

Medical device manufacturer St. Jude Medical Inc (STJ.N) said on Friday a report by short-selling firm Muddy Waters and a cyber-security researcher alleging its heart devices were riddled with bugs was “false and misleading.”

The report, which caused St. Jude shares to fall 5 percent after its release on Thursday, alleged there were significant security bugs in the company’s Merlin@home device for monitoring implanted heart devices.

St. Jude chief technology officer Phil Ebeling on Thursday said “the allegations are absolutely untrue” but provided no specific examples of errors.

St. Jude on Friday said most of the observations in the report applied to older versions of its Merlin@home devices, which had not been patched with security upgrades that the company automatically pushes out to customers.

“We want to reassure our patients that our systems meet the highest international security requirements, as required by regulatory authorities and international standards organizations,” St Jude said.

Muddy Waters late on Friday said it plans to publicly refute the response of St. Jude, which in April agreed to sell itself for $25 billion to Abbott Laboratories (ABT.N).

“This was a missed opportunity for St. Jude to take responsibility for their flawed devices,” the short seller said in a statement.” MedSec executives could not be reached for comment.

Muddy Waters had no immediate response to St Jude’s claim that the testing was done on older versions of its devices with unpatched software. “We continue to stand by the report and are pleased the company has actually decided to respond to the allegations.”

St. Jude shares closed marginally higher on Friday after the company released its statement following a halt in trading. Earlier they had traded as low as $75.34 in heavy trade.

Muddy Waters founder Carson Block said on Thursday he decided to short the stock after MedSec approached Muddy Waters about three months ago with results of research it had conducted into its medical device security.

The two struck a deal under which Block agreed to hire the cyber security firm as a consultant, pay it a licensing fee for the research and a percentage of any profits from the investment, Block said.

In its rebuttal on Friday, St Jude said the researchers used a “flawed test methodology on outdated software,” demonstrating “lack of understanding of medical device technology.”

Beau Woods, a medical-device security expert with the non-profit Atlantic Council, said that while he had no knowledge of MedSec’s research methodology, St. Jude’s explanation sounded reasonable.

“It makes sense that they would not have the current versions of software; that rings true to me,” said Woods. He said that medical device makers typically push out regular updates to their software, which include security patches.

(Reporting by Jim Finkle in Toronto; Editing by Jeffrey Benkoe and James Dalgleish)

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Caesars must face $11 billion in lawsuits: U.S. judge

CHICAGO Caesars Entertainment Corp (CZR.O) must face lawsuits from bondholders seeking some $11 billion in claims, a U.S. judge ruled on Friday in a decision the casino company had warned could plunge it into bankruptcy alongside its operating unit.

Shares of the Nevada-based gaming company fell 12 percent after-hours.

Caesars Entertainment Operating Co (CEOC), which filed for Chapter 11 protection in January 2015, was asking for a third court shield from lawsuits against its parent to protect a multibillion-dollar contribution to its reorganization plan.

The high-stakes CEOC bankruptcy has been plagued by a complex web of litigation pitting some of the most aggressive investors on Wall Street against each other.

A current injunction expires on Aug. 29, a day before Caesars faces a potential ruling in New York on lawsuits from bondholders alleging it reneged on guarantees from bonds issued by CEOC prior to the unit’s $18 billion bankruptcy.

CEOC had argued that another halt to a decision on those lawsuits was critical to securing a settlement with holdout creditors before its reorganization plan heads to a confirmation trial in January.

“I can’t find that an injunction is likely to enhance the prospects for negotiation,” U.S. Bankruptcy Judge Benjamin Goldgar in Chicago said in his courtroom ruling.

Bitter creditors accuse Caesars and its private equity sponsors Apollo Global Management LLC (APO.N) and TPG Capital Management LP [TPG.UL] of stripping the unit of choice assets such as the LINQ Hotel Casino in Las Vegas and leaving it bankrupt.

Caesars, Apollo and TPG have denied any wrongdoing, though a court-appointed examiner found they could be on the hook for up to $5.1 billion in claims.

To settle the allegations Caesars has offered to pitch about $4 billion into CEOC’s reorganization in exchange for releases from the claims. Goldgar asked on Friday why Apollo and TPG were not also contributing, saying the injunctions to date had provided them “a comfortable free ride” on CEOC’s “coattails”.

Both Caesars and CEOC said they were disappointed by the decision. The court’s refusal to extend the shield puts Caesars’ “substantial contribution” to CEOC’s reorganization plan “at serious risk,” a Caesars spokesman said in an email.

CEOC lawyers said they planned to appeal the ruling.

“It would be hard to reverse Goldgar without dramatically expanding the availability of third-party releases, something that would be out of step with the standards in other circuits,” said Douglas Baird, a professor at the University of Chicago Law School.

(Editing by Meredith Mazzilli and Matthew Lewis)

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Icahn denies attempt to sell Herbalife stock, buys more shares

Carl Icahn said he did not attempt to sell his Herbalife Ltd (HLF.N) stake, and had instead bought more shares in the health supplements maker, rejecting hedge fund manager Bill Ackman’s claim that he had been offered some of Icahn’s shares.

Herbalife shares rose 4 percent in extended trading, reversing course after Icahn said he had bought 2.3 million shares on Friday.

“Completely contrary to what Bill Ackman stated on television today, I have never given Jefferies an order to sell any of our Herbalife shares,” Icahn said in a statement after market close.

Ackman, who unveiled a $1 billion short bet against Herbalife in 2012, said on CNBC earlier in the day that Icahn’s planned stake sale would accelerate the company’s downfall.

“I continue to believe in Herbalife,” Icahn said, disclosing a 20.78 percent stake in the company.

He held 18.32 percent of Herbalife as of July 15.

Icahn and Ackman have opposing bets on Los Angeles-based Herbalife. Ackman for years has accused Herbalife of running a pyramid scheme and bet that the stock would fall to zero.

The duo even became embroiled in a public war of words, with Icahn famously calling Ackman a “liar” and a “crybaby” in a CNBC interview in 2013.

Icahn on Friday said Ackman had “developed a very bad case of Herbalife obsession.”

While Ackman has lost money on his short bet over the years, Icahn has made money but his gains are now at risk of shrinking as the stock has fallen in the last few days.

The investors’ comments come a little over a month after the company agreed to pay $200 million and change the way it does business to avoid being labeled a pyramid scheme by U.S. regulators.

Following the settlement with regulators, Herbalife said its board had cleared the way for Icahn to boost his stake in the company to as much as 35 percent.

Investment bank Jefferies Group has been trying to find buyers for Icahn’s Herbalife stake for about a month, the Wall Street Journal reported on Friday.

Sources told Reuters on Thursday that Icahn was considering structuring a sale of Herbalife shares.

“We appreciate the support of all of our investors and are particularly grateful to Carl Icahn and the conviction he shares, and continues to show in our business,” Herbalife CEO Michael Johnson said.

Ackman could not be reached for comment, while Jefferies was not immediately available for comment.

(Reporting by Bhanu Pratap, Sruthi Ramakrishnan and Gayathree Ganesan in Bengaluru; Additional reporting by Svea Herbst-Bayliss in Boston; Editing by Savio D’Souza, Saumyadeb Chakrabarty and Shounak Dasgupta)

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Uber wins halt to N.Y. price-fixing lawsuit during appeal

NEW YORK A federal judge on Friday granted a request by Uber Technologies Inc and its chief executive officer to put a passenger’s price-fixing lawsuit against them on hold, while they appeal his refusal to let them arbitrate the dispute.

Calling his decision a “close call,” U.S. District Judge Jed Rakoff in Manhattan said the defendants had not made a “strong showing” that their appeal would likely succeed, though they would face irreparable harm if arbitration were wrongfully denied.

But he said the appeals court could clarify whether Spencer Meyer, the Connecticut plaintiff, and others like him consent to arbitration when they buy services subject to conditions in “clickwrap” and “browsewrap” agreements found online.

In his proposed nationwide class-action lawsuit, Meyer said Uber and CEO Travis Kalanick violated antitrust laws by conspiring with drivers to charge high “surge-pricing” fares during periods of heavy demand. Uber takes a share of drivers’ earnings.

On July 29, Rakoff denied Uber’s request for arbitration, saying Meyer never agreed to it and the San Francisco-based company did not properly notify him about its policies.

Meyer opposed delaying his case while Uber appealed that ruling.

“We look forward to defending Judge Rakoff’s decision and having this matter returned to the district court,” Brian Feldman, a lawyer for Meyer, said in an email.

Uber and its lawyers did not immediately respond to requests for comment.

The company faces several lawsuits over its pricing and its treatment of drivers, and often tries to keep such disputes away from courthouses.

On Aug. 18, a federal judge in San Francisco voided Uber’s $100 million settlement with drivers who claimed they were employees rather than independent contractors, and entitled to recoup costs such as gas and vehicle maintenance. The judge said that accord was not fair, reasonable or adequate.

The case is Meyer et al v. Kalanick et al, U.S. District Court, Southern District of New York, No. 15-09796.

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Fed’s Yellen sees stronger case for interest rate hike

JACKSON HOLE, Wyo. The Federal Reserve is getting closer to raising interest rates again, the head of the U.S. central bankand other policymakers said on Friday in comments that left the door open for a hike as early as next month.

Fed Chair Janet Yellen told a global monetary policy conference that the case for a rate increase had grown stronger, while Fed Vice Chair Stanley Fischer suggested a move could come at the central bank’s September policy meeting if the economy was doing well.

Although U.S. government data earlier on Friday showed the economy growing only sluggishly in the second quarter, Yellen said a lot of new jobs were being created and economic growth would likely continue at a moderate pace.

“I believe the case for an increase in the federal funds rate has strengthened in recent months,” Yellen said in a speech at the Fed’s annual monetary policy conference in Jackson Hole, Wyoming.

Yellen said the Fed already thinks it is close to meeting its goals of maximum employment and stable prices, and she described consumer spending as “solid” while noting business investment was weak and exports had been hurt by a strong U.S. dollar.

But she did not give guidance on what the central bank needs to see before raising rates. Following her remarks, investors continued to bet there were roughly even odds of an increase at the Fed’s December policy meeting.

“She’s just kept the door open for a hike sooner rather than later,” said Subadra Rajappa, an interest rate strategist at Societe Generale in Washington.

In an interview with CNBC after Yellen’s speech, Fischer, the central bank’s No. 2 official, said the Fed chief’s comments were a sign of how close policymakers could be to raising rates if data kept pointing to a good economic outlook.

Asked whether people should “be on the edge of our seat” for a rate hike in September and for more than one policy tightening before the end of the year, Fischer said, “I think what the Chair said today was consistent with answering yes to both of your questions.”

Atlanta Fed President Dennis Lockhart also said on Friday that two rate hikes were possible this year, and Cleveland Fed President Loretta Mester argued for a hike soon to avoid falling behind the curve on inflation.

The Fed officials’ comments pushed the dollar .DXY higher against a basket of currencies. U.S. stock prices see-sawed, ending the trading session generally lower, while prices of U.S. Treasuries were mostly weaker.


Markets remained skeptical of the Fed’s rate hike projections largely because of the perceived wide gap between what it has signaled and ultimately delivered.

The Fed raised rates in December for the first time in nearly a decade and projected another four hikes in 2016, only to scale that back to two moves in the wake of a global growth slowdown, financial market volatility and slow progress in meeting its 2 percent inflation goal.

A split within the Fed over whether to hike rates soon or take a more cautious approach also has muddied the waters.

Fed Governor Jerome Powell told Bloomberg Television on Friday the central bank could afford to be patient and that he wanted to see inflation rise before lifting rates.

“When we see progress toward 2 percent inflation and a tightening in the labor market and growth strong enough to support all that, we should take the opportunity,” Powell said. (Full Story)

In her speech, Yellen noted that Fed officials have a wide range of views on where rates will likely be in the coming years. She said current forecasts imply a 70 percent probability they will be between 0 percent and 3.75 percent at the end of 2017.

In addition to December, the Fed also has policy meetings scheduled in September and November, although prices for fed funds futures imply investors see scant chance of a rate increase at either of those meetings.

(Reporting by Jason Lange and Ann Saphir; Additional reporting by Lindsay Dunsmuir in Washington and Dion Rabouin in New York; Editing by Paul Simao)

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Redstone granddaughter agrees to case dismissal, helps broader deal

CANTON, Mass. The granddaughter of Viacom Inc’s controlling shareholder Sumner Redstone has agreed to let a Massachusetts court dismiss claims brought by former company leaders, a step that will help end a battle over the fate of the media empire.

Lawyers for Keryn Redstone said at a Massachusetts court hearing on Friday they have also agreed to mediate remaining parts of her family dispute and that she will have an in-person meeting with her 93-year-old grandfather.

“There will be peace in the Redstone valley” said Keryn Redstone’s attorney Pierce O’Donnell, speaking to reporters after the hearing at Norfolk County Probate and Family Court in Canton, Massachusetts.

Keryn Redstone’s interest in a family trust is worth $1 billion, he said.

While some terms must still be hammered out, Friday’s agreements will help end an ongoing legal saga over whether Redstone was mentally competent when he removed former Viacom CEO Philippe Dauman and board member George Abrams from a trust that will determine the fate of his media empire.

On Saturday, Viacom announced that it had come to an agreement with Redstone, and his privately-held National Amusements Inc, which owns 80 percent of the voting shares of Viacom and CBS Corp [nL1N1B10MX}.

Dauman has stepped down as CEO and will receive as much as $90 million in cash and stock-based compensation, according to the agreement.

But Keryn Redstone, who is Shari Redstone’s niece and was replaced as a trustee in 2012, had challenged the validity of the settlement agreement because she believes her grandfather is being manipulated by his daughter Shari.

Under the settlement, the board of Viacom added the five directors that National Amusements put forward in June, bringing the board to 15 directors after Dauman departs. Three of those directors are expected to step down after Viacom’s annual meeting next year, a source familiar with the situation told Reuters last week.

Despite that settlement, Keryn Redstone filed a cross-complaint in connection to Dauman’s lawsuit. In a filing on Thursday she also questioned if Dauman’s side did enough to assure themselves that Redstone had the mental capacity to understand the terms.

Friday’s court hearing drew about two dozen lawyers representing the various Redstone family members plus Dauman, Abrams and others. A morning session included heated moments as it became clear that most of the family was looking to end the litigation, while O’Donnell sought to raise questions about Redstone’s mental capacity.

Sumner Redstone has not spoken on an investor call since 2014 and has not spoken directly about the settlement since it was announced this month.

Attorney Robert Klieger portrayed Sumner Redstone’s health as stable, saying the aging media mogul has had “no recent hospitalizations.” There is, Klieger said, “No reason to believe that Mr. Redstone will not still be here with us for the duration of this case on any reasonable schedule.”

(Reporting by Ross Kerber; Editing by Nick Zieminski)

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Alstom says wins $2 billion U.S. train deal

PARIS French transport group Alstom (ALSO.PA) said on Friday it had signed a 1.8 billion euro ($2 billion) deal to design and build 28 new high-speed trains for U.S. rail operator Amtrak.

Under the deal, Alstom said it would also provide long-term technical support and spare parts.

The trains will run on the Northeast Corridor (NEC) between Boston and Washington D.C, the statement said.

(Reporting by Ingrid Melander)

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For the Fed’s Yellen ‘conventional’ unconventional policy is enough

WASHINGTON For all the talk of a radical shift in central banking policy, from the permanent use of negative rates to helicopter money drops, Federal Reserve Chair Janet Yellen appears to believe she can tackle any future downturn using the tools currently at her disposal.

Speaking in Jackson Hole, Wyoming, on Friday after a Fed policymaker and other economists proposed a radical overhaul of central banking, Yellen argued that bond purchases and the ability to pay interest on excess reserves as well as forward guidance would be enough to combat any downturn.

“Our current toolkit proved effective last December (when the Fed raised rates),” Yellen said in a speech in which she firmed up expectations of a second rate rise from the Fed, possibly as soon as September.

“In an environment of superabundant reserves, the FOMC raised the effective federal funds rate…by the desired amount, and we have since maintained the federal funds rate in its target range.”

So much for radical change of the type proposed by John Williams of the San Francisco Fed earlier this month. Williams made the case for an eventual move to nominal growth targeting or a shift in the inflation rate upwards to give central banks the tools to fight the next economic downturn.

“Helicopters, negative rates or a higher inflation target remain confined to other central banks or academic circles,” Commerzbank economist Bernd Weidensteiner wrote after Yellen’s speech.

Yellen’s seeming reliance on more quantitative easing was challenged at Jackson Hole by Marvin Goodfriend, a professor of economics at Carnegie Mellon University and a former policy adviser at the Richmond Federal Reserve bank, who said he believed negative rates would be a far more effective policy tool.

“Interest rate policy is by far the most flexible, the least intrusive to markets, and has proven capable of targeting low inflation,” he said in a presentation after Yellen spoke.


While Fed policy has been credited with helping unemployment fall to levels seen prior to the downturn, trillions of dollars of quantitative easing and eight years or zero or near-zero rates have failed to spark a rebound in economic growth.

Data released just before Yellen spoke on Friday showed the U.S. economy expanded by just 1.1 percent in the second quarter of the year, held back in part by stubbornly weak business spending.

Business investment as a share of gross domestic product since 2008 has averaged nearly a full percentage point below the previous decade’s average, according to government data.

The Fed has also been charged with increasing inequality with its bond buying program and negative rates, and with being overoptimistic in its forecasts of economic recovery and the pace of interest rate hikes.

In 2010, the year after the U.S. economy emerged from recession, the midpoint of Fed policymakers’ predictions was for 3.3 percent growth in 2011. The economy actually grew at less than half that pace and forecasts since then have generally proved rosier than reality.

For 2016, the Fed is forecasting growth of 2.0 percent, which would require the economy to perk up after a sluggish performance in the first half.

Yellen on Friday defended the models used by the Federal Reserve.

She said that barring an “unusually severe and persistent” recession, its policy tools were sufficient and rates did not need to go negative, as even at the lower bound for interest rates asset purchases and forward guidance could push long-term rates even lower on average than when nominal rates fell below zero.

Given the forecasting errors of recent years, some economists were less than impressed, saying Yellen’s speech showed past policy errors were being repeated.

“Yellen seems to have developed into the ultimate ‘status quo’-chair,” said Lars Christensen founder and owner of Markets and Money Advisory, an independent firm focused on monetary policy issues.

“It is clear that she fundamentally does not want to see any change to the Fed’s policy framework despite the fact that inflation expectations have become de-anchored and markets have lost trust in the Fed really fundamentally wanting to deliver on its 2 percent inflation target,” Christensen said.

(Additional reporting by Lindsay Dunsmuir and Lucia Mutikani in Washington, Howard Schneider, Ann Saphir and Jason Lange in Jackson Hole; Editing by Andrea Ricci)

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