Western Digital (WDC) shares tanked Tuesday off news that its deal to acquire SanDisk (SNDK) will not be supported by its Chinese partner.
The Irvine, Calif.-based flash-memory data storage manufacturer is slated to acquire its California industry peer in a roughly $17 billion deal valued at $67.50 per share.
The goal is for Western Digital to help dig SanDisk out of an ugly pile of leveraged debt -- aiming to eliminate its high debt-to-earnings ratio shortly after the deal closes -- and cash in on a more favorable stake in the data-storage market. (SanDisk had roughly $2.2 billion in debt at the end of 2015, supported by just $350 million in annual income.)
But Western Union's partner in the deal, Beijing-based Tsinghua Unisplendour balked at a proposed investigation by the Committee on Foreign Investment in the United States (CFIUS), which announced it would review the deal terms. Unis was set to take a 15% interest in Western Digital through newly issued shares.
"Western Digital, Unis and Unis Union have been notified by CFIUS that it is undertaking an investigation of the proposed Unis Union investment under the Exon-Florio Amendment to the Defense Production Act, triggering a 15-day period during which either Western Digital or Unis Union may terminate the stock purchase agreement," Western Digital said in a Tuesday statement.
Shares of Western Digital fell 7% off the news of the lost partnership in afternoon trading, while SanDisk shares ticked down 1.5%.
"We continue to look forward to our transformational combination with SanDisk and capitalizing on the growth opportunities ahead of us as the demand for data storage continues to increase, despite the inability to carry out the equity investment by Unis," Western Union CEO Steve Milligan said in a statement. "We believe the strategic rationale for this acquisition is even more compelling today than when we first announced it in October last year given industry trends and strong execution by both companies."