Foreign Purchases of Some American Businesses Face Government Examination

7/20/15 - The Committee on Foreign Investment, an agency through the United States Treasury Department, is responsible for deciding whether to approve or deny any attempted purchase of an American company by a company based in another country. Some such buy-outs are simple and easily approved. Others, like the purchase of Micron Technology Inc., as discussed by James F. Peltz, in his L.A. Times article, require much more discussion and consideration.

The Committee on Foreign Investment only tends to take issue with purchases when they may affect national security. For example, in 2005, a major Chinese oil company called CNOOC Ltd. made an offer of $18.5 billion to purchase Unocal Corp., a California-based oil company. Politicians took issue with this proposed buy-out because they feared that foreign ownership of the American oil provider could possibly cause major problems for the future of American energy security. Eventually, due to complaints and protests regarding the deal, CNOOC Ltd. decided to retract its offer.

More recently, another Chinese company, Tsinghua Unigroup Ltd., has reportedly been preparing a $23 billion offer for the purchase of Micron Technology Inc., a major manufacturer of dynamic random-access memory chips. While Micron claims that no offer has been received yet, Peltz’s sources believe that the deal may not go through anyway, even without interference from the Committee on Foreign Investment. Micron’s stock prices in December were at $36 per share, and while those prices have dropped throughout the year, analysts still believe that the expected offer of $21 per share will not be enough to convince Micron to sell.

Were such an offer proposed by Tsinghua Unigroup and accepted by Micron, it is unlikely that the sale would be approved without a struggle. The Committee on Foreign Investment would have to come up with some pretty compelling reasons to grant approval for a state-owned Chinese country to gain control of one of the only major American producers of memory chips, found in so many devices from smartphones to personal computers. Memory chips are everywhere, in the public sector and in the government, and the change in ownership could pose a security risk, especially after the large number of recent cyber-attacks that have been traced back to China.

Having spent over $200 billion, last year alone, on importing integrated circuits, China, like other Asian countries, wants to become more independent and work on developing its own network of memory chip production, rather than continuing to purchase from America and other countries. Unfortunately for them, they will probably not achieve this goal through a purchase of Micron. Between the Department of Defense’s responsibility to protect national security and Micron’s high stock prices, it is more than likely that this Micron deal will end the same way as Unocal Corp.’s did.

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Wal-Mart To Increase Minimum Wage to $9 Per Hour

3/13/15 - Statistics show that six out of ten Americans believe that the federal minimum wage should be raised. Many believe the raise is necessary, as a wage of $7.25 per hour is not necessarily enough to live on, especially for individuals trying to support their family. Others believe that if the minimum wage is raised, companies will be forced to lay off some workers, or raise prices on goods, in order to compensate for the extra money being payed to employees. In their L.A. Times articlerticle, Jim Puzzanghera, Shan Li, and Sarah Parvini discuss a recent decision by Wal-Mart to raise their minimum wage and what this decision means for them and their workers in the long run.

After facing intense protests and rallies led by labor groups and increases in state minimum wages throughout the country, Wal-Mart decided to protect its public image and raise its minimum wage to $9 per hour, $1.75 per hour above the federal minimum wage, for around 40% of its employees, starting in April. This will provide about 500,000 Wal-Mart employees a substantial pay increase, and the company plans to raise the minimum wage even more, to $10 per hour, by February 2016.

According to Doug McMillon, a Chief Executive at Wal-Mart, these changes are to help build a stronger business while also providing for the needs of their employees. While the pay raises do place the company in a better light, prevent the federal government from having to propose higher minimum wages, and lower costs incurred by having to continuously train new hires, they will also cost over $1 billion in extra costs during this fiscal year. Shares in Wal-Mart fell 3.2% since the beginning of the fiscal year, but economist Justin Wolfers is confident that the benefits will far outweigh the added costs.

By Wolfers' argument, as an employee's salary increases, so does their productivity. Several companies, including Costco, Trader Joe's, and the Gap, have illustrated this point of view, showing a correlation between happy customers and employee wages well above the federal minimum. Could this just be a matter of correlation versus causation, however?

It makes financial sense for Wal-Mart to increase their wages, and some believe that this may force similar businesses like Target, Safeway, and Kroger to raise wages or risk losing employees. Craig Johnson, president of Consumer Growth Partners, believes that Wal-Mart's changes may convince Target employees to change teams, but he doubts that others will give up good jobs at other stores to join Wal-Mart.

For some, the wage increases are not enough. “Ten dollars is pocket change,” says Sanders Mosley, a current Wal-Mart employee. Many feel that companies can afford to and should pay their employees $15 per hour, rather than the ten to thirteen dollar per hour wages on the high end of the spectrum. Is $10 enough to live on, with the rising cost of living and the improving economy? Maybe, maybe not. Can companies really afford to a minimum of $15 per hour and still keep workers employed and shareholders happy? Probably not. While Wal-Mart and many others are raising their wages, they are careful not to go too far, and thus make sure that happy employees are a benefit, not a net financial loss.

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