Tsinghua kills $3.8bn investment plan in Western Digital

A Chinese state-controlled technology group has terminated a $3.8bn plan to become the largest shareholder in data storage group Western Digital, after the investment was flagged for an investigation by US authorities.

On Tuesday, a unit of Tsinghua Unigroup, China’s most ambitious overseas acquirer in the chipmaking sector, said it would quit a deal agreed last September that would have seen it acquire a stake of around 15 per cent in the company.

Shares in Western Digital had slumped more 6 per cent by late Tuesday morning to $42.93. The Irvine, California-based company said the deal with Tsinghua fell apart after a decision by the Committee on Foreign Investment in the United States to launch a review into the transaction.

The move comes at a time when Chinese companies are striking large overseas deals at their fastest clip in history, even as concerns remain about their ability to close the transactions.
Shares in Western Digital have fallen sharply over the past year. This has affected both the value of its $19bn cash and stock acquisition of SanDisk, a flash-memory disk maker, as well as the premium of the all-cash investment from Unisplendour, the Tsinghua subsidiary.The Chinese group had planned to buy newly issued Western Digital shares at a price of $92.50.The deal would have seen Tsinghua get the right to nominate one person to the board of Western Digital.
Neither company would incur a termination fee, Western Digital said.One Washington-based lawyer who works on CFIUS-related matters said it was odd for Tsinghua to walk away from the deal as the government had only indicated that it would investigate the investment, not that it would block the deal.
“All that happened here was that CFIUS said it was a covered transaction and that they would look into it,” he said. “The Chinese were getting a board seat and a joint venture was being formed, so of course they would review it.”
The collapse of the deal marks the second time this year a large Chinese transaction has collapsed due to scrutiny by the US intergovernmental body, which reviews foreign investments for national security concerns.

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