Security review leads to canceling of Chinese investment in Western Digital
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.”