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Western Digital sells strangely limited 15 per cent stake to China

Nothing to do with the MOFCOM hold on the HGST merger. Nope

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China pays Western Digital's wall-crossing fee

In a transaction said to be unconnected to the HGST-WD merger – still becalmed by Chinese watchdog MOFCOM – Western Digital is selling a 15 per cent stake to a subsidiary of China-based Unisplendour Corporation (Unis) for $3.8bn.

Western Digital said: “Unis is a respected, publicly-traded Chinese company. It has been trading on the Shenzhen exchange since 1999, with its largest single shareholders being Tsinghua University and its subsidiaries.”

MOFCOM is the Chinese state regulatory agency and it is holding up the full integration of WD and its acquired HGST subsidiary because of competition concerns.

Western Digital emphasised: “This announcement does not have any relation to the long-awaited decision from MOFCOM on the possible integration of HGST.”

Oh yes? Well, common sense says it’s hardly likely to hinder the MOFCOM decision should it go in WD’s favour.

Unis will buy newly issued shares at $92.50/share, a 34 per cent premium when compared with yesterday’s closing price of $68.87/share. It will nominate a director to sit on WD’s board – who is required to vote with the rest of WD’s board and cannot vote on government-related issues in a five-year standstill agreement.

Western Digital's president and CEO Steve Milligan said: "The equity investment by Unis will help facilitate our growth as we look to capitalise on the many opportunities and changes within the global storage industry.”

In a companion canned quote, Weiguo Zhao, chairman of Tsinghua Unigroup and Unisplendour Corporation, said: "We are excited to establish a relationship with Western Digital, a leading company in the storage industry with a capable and talented management team and workforce. We believe this long-term investment will serve as a constructive collaboration model for Chinese and US companies to work together for success.”

Unis has form in linking financially with US IT suppliers. It acquired a 51 per cent stake worth $2.3bn in HP’s H3C Technologies and HP’s China-based server, storage, and technology services businesses in May 2015. Earlier, in September 2014, Intel invested $1.5bn in a 20 per cent equity stake in Unis.

The Unis-WD transaction is expected to close in 1Q16. No shareholder vote is required. We wouldn’t be at all surprised if MOFCOM OKs the WD-HGST merger in fairly short order.

Check out a FAQ on the Unis investment here. It states “Unis will not have any day-to-day or operational control over Western Digital, nor will it control, own or manage Western Digital IP or technology.” ®

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