Se­cu­rity re­view leads to can­cel­ing of Chi­nese in­vest­ment in Western Dig­i­tal

China Daily (Canada) - - ACROSS AMERICAS - By PAUL WELITZKIN in New York paulwelitzkin@chi­nadai­lyusa. com

A Chi­nese com­pany’s planned in­vest­ment in diskdrive maker Western Dig­i­tal Corp has been can­celed af­ter a de­ci­sion by the Com­mit­tee on For­eign In­vest­ment in the US (CFIUS) to in­ves­ti­gate the trans­ac­tion.

In a state­ment is­sued on Tues­day, Irvine, Cal­i­for­ni­abased Western Dig­i­tal an­nounced that China’s Unis­plen­dour Co Ltd would ter­mi­nate a plan to buy a 15 per­cent stake in Western af­ter the deal faced a re­view by the Amer­i­can com­mit­tee. Unis­plen­dour is a sub­sidiary of Ts­inghua Hold­ings Co Ltd. The in­vest­ment would have made Unis­plen­dour Western Dig­i­tal’s largest share­holder and given it a board seat.

CFIUS re­views for­eign M&A and in­vest­ments in US busi­nesses that can raise na­tional se­cu­rity is­sues.

“Unis­plen­dour pulled out of the trans­ac­tion be­cause it was con­cerned that CFIUS would dis­ap­prove the ac­qui­si­tion of (the) Western Dig­i­tal (stake). We do not know if there was a pos­si­ble mit­i­ga­tion that would have sat­is­fied CFIUS, but was un­ac­cept­able to Unis­plen­dour,” said Theodore Mo­ran, se­nior fel­low and prin­ci­pal CFIUS in­ves­ti­ga­tor at the Peter­son In­sti­tute for In­ter­na­tional Eco­nom­ics in Wash­ing­ton.

Michael Wes­sel, a mem­ber of the con­gres­sion­ally man­dated US- China Eco­nomic and Se­cu­rity Re­view Com­mis­sion and a con­sul­tant in Wash­ing­ton, noted that CFIUS re­views each in­vest­ment on its own and in terms of the over­all im­pact on US na­tional se­cu­rity.

“If a CFIUS re­view trig­gered the de­ci­sion not to pro­ceed, that raises real ques­tions of whether the trans­ac­tion should ever have been con­sid­ered in the first place,” he said.

The scrapped Unis­plen­dour deal re­veals the in­creas­ing role CFIUS is play­ing as the Chi­nese seek to ex­pand in­vest­ments in the US. Pro­posed deals in­volv­ing Chi­nese in­vestors have faced re­views from CFIUS re­cently. Their in­ter­est in US tech­nol­ogy has drawn US law­mak­ers’ at­ten­tion.

Mo­ran doesn’t think this means Chi­nese in­vest­ments in the US tech sec­tor face in­sur­mount­able odds with CFIUS.

“While po­ten­tial Chi­nese in­vestors may feel that this case (Unis­plen­dour) casts a shadow over fu­ture ac­qui­si­tions in the com­puter/IT sec­tor in the US, the re­al­ity is that CFIUS looks closely at each pro­posed ac­qui­si­tion on a case-by-case ba­sis. Af­ter all, CFIUS ap­proved Len­ovo’s ac­qui­si­tion of IBM’s x-86 server busi­ness in 2014,” he said.

Western Dig­i­tal, which reached an agree­ment to buy SanDisk Corp for about $19 bil­lion last year, said at the time it would re­vise the of­fer if the Unis­plen­dour in­vest­ment didn’t ma­te­ri­al­ize. The com­pany said it will now pay $78.50 a share in cash and stock for SanDisk, down from the orig­i­nal of­fer of $86.50, or about $15.78 bil­lion.

Unis­plen­dour pulled out ... be­cause it was con­cerned that CFIUS would dis­ap­prove the ac­qui­si­tion.”

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