China’s Tsinghua to invest $3.8b in Western Digital
China’s state-backed Tsinghua Holdings has agreed to pay $3.78 billion for a 15% stake in Western Digital, a US-based disk drive manufacturer.
Unisplendour Corporations, a publicly-traded subsidiary of Tsinghua Holdings, will buy newly-issued Western Digital shares at $92.50 apiece, representing a 33% premium to the last close prior to the announcement. Unisplendour has the option to appoint a board member to Western Digital, although this right will be terminated if its ownership falls below 10%.
The transaction still requires regulatory approval. The Chinese investor's shares in Western Digital would be subject to a five-year lock-up.
Western Digital said it will use the net proceeds would be used to strengthen its balance sheet and pursue growth initiatives.
Founded in 1970, Western Digital develops external disk drives for data storage. The company generated $14.6 billion in revenue last year - half of it from Asia - down from $15 billion in 2013. Net income fell to $1.47 billion in 2014 from $1.6 billion in 2013.
"We believe this long-term investment will serve as a constructive collaboration model for Chinese and US companies to work together for success," said Weiguo Zhao, the chairman of Tsinghua Unigroup, in a statement.
The deal is Tsinghua Holdings' largest acquisition so far this year. In May, it bought a majority stake in Hewlett-Packard's China-based data-networking business for approximately $2.3 billion.
In July 2013, Tsinghua Unigroup, Tsinghua Holding's subsidiary, acquired Spreadtrum Communications, a Chinese mobile chip manufacturer backed by New Enterprise Associates, valuing the company at approximately $1.78 billion. Meanwhile, Tsinghua Unigroup signed a strategic agreement with Intel Corporation, selling a 20% stake to the chip maker for $1.5 billion.
Tsinghua Holdings is a state-owned company responsible for managing the majority of Tsinghua University commercial assets. As of year-end 2012, it had approximately RMB70.4 billion ($11.5 billion) in assets and a net income of RMB1.45 billion.
Listed in Shenzhen, Unisplendour develops and sells IT products and softwares, including servers, storage and networking equipment. The company plans to expand into cloud computing, mobile internet and big data processing.
Wells Fargo Securities acted as financial advisor to Western Digital.
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