Western Digital Corp.’s (IW 1000/89) plan to sell a 15% stake to a Chinese investor fell apart after the deal came under a U.S. national security review, highlighting the government’s ability to chill agreements that could give Chinese companies access to U.S. technology.
Without the investment from China’s Tsinghua Unisplendour Corp., Western Digital cut its offer for rival SanDisk Corp., but is still plugging ahead, showing its determination to gain market access and shave costs in the fast-growing markets for pocket devices and cloud computing.
In a statement on February 23, Western Digital said Unisplendour pulled out of its plan to buy a stake in the computer-storage manufacturer after the deal came under scrutiny by the Committee on Foreign Investment in the United States, a panel led by the Treasury Department that reviews acquisitions of American businesses by foreign investors for security risks. It can impose conditions on deals or recommend that the president block them.
The scrapped Unisplendour deal highlights the roadblocks Chinese firms are encountering as they seek access to computing know-how. Chinese investors have faced an increasing number of reviews from CFIUS in recent years, and their interest in U.S. technology has drawn fire from lawmakers worried about risks to national security.
Fairchild Semiconductor International Inc. decided to go with a takeover proposal from On Semiconductor Corp. earlier this month, passing up a higher offer from a Chinese group on the grounds it might not get a U.S. security nod.
The investment by Unisplendour would have made the Chinese group Western Digital’s largest shareholder and given it a board seat. Unisplendour didn’t immediately respond to a phone call and e-mail seeking comment on the announcement.
Western Digital said it will buy memory-chip maker SanDisk for $15.8 billion, or $78.50 a share in cash and stock, 16 percent more than its closing price Monday, going ahead without the $3.78 billion infusion from Unisplendour. In October, Western Digital offered $86.50 a share for SanDisk.
Western Digital’s determination to proceed speaks to the need for storage suppliers to expand access in computing’s hottest markets while gaining efficiency through size. The deal gives Western Digital a strong hold in the growing market for NAND flash memory chips, which store data in mobile devices and are increasingly being used in computer hard drives.
NAND flash from SanDisk will also let Western Digital supply a growing part of the storage market in the biggest data centers, including in equipment supplied by Dell Inc. and EMC Corp., which are joining in their own mega-merger. Those centers underpin software ranging from corporate applications to apps on consumers’ smartphones, where much of the processing power is delivered via cloud-computing services online.
“The strategic rationale for this acquisition is even more compelling today than when we first announced it in October,” Western Digital Chief Executive Steve Milligan said. Joining forces with SanDisk could save $500 million in costs within a year and a half, and $1.1 billion by 2020, the Irvine, California-based company said.
While SanDisk’s chips are commodity-like storage semiconductors used in mobile devices and computers and widely available from other suppliers, the U.S. company is one of only a handful that’s developing cutting-edge manufacturing capabilities. China currently doesn’t have direct access to such techniques and companies such as Intel Corp. have been prevented from exporting it there.
Under Western Digital’s new deal, SanDisk’s owners will get $67.50 a share in cash and 0.2387 a Western Digital share for each share of the target company.