Tsinghua Unigroup abandons plan to invest in Western Digital

In October last year, Unisplendour Corporation, a publicly-traded subsidiary of Unigroup, agreed to pay $3.78 billion for a 15% stake in Western Digital. The Chinese group had planned to buy newly-issued Western Digital shares at $92.50 apiece, representing a 33% premium to the last close prior to the announcement.

Unisplendour said in a filing on Tuesday that it will no longer pursue the deal after a decision by the Committee on Foreign Investment in the United States (CFIUS) to launch a review into the transaction. However, it will set up a joint venture with Western Digital, with registered capital of $158 million. The Chinese company has agreed to contribute $80.58 million while Western Digital will put in the remainder.

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.

Unigroup, the Chinese state-owned investment firm of Tsinghua University, wants to become the world's third-largest chipmaker and has earmarked RMB300 billion ($47 billion) to support this effort. The company privatized US-listed Spreadtrum Communication in 2013 and bought a majority stake in Hewlett-Packard's China data networking business for $2.3 billion last year.

Following the announcement Unigroup's proposed investment in Western Digital, the US company bought chipmaker SanDisk Corp. One of the rivals for this deal was Micron Technology, which earlier in the year spurned a bid by Unigroup over national security concerns.

Last week, US-based Fairchild Semiconductor International turned down a $2.6 billion take-private bid from China Resources Microelectronics and Hua Capital because of "an unacceptable level of risk" that approval would not be forthcoming from the CFIUS. The US agency also blocked a $3.3 billion sale of Philips' LED components and automotive light unit to Chinese PE firm Go Scale Capital. 

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