Tsinghua Unigroup Financing the Purchase of SanDisk by Western Digital to Gain Semiconductor Capability

On October 1, 2015, Tsinghua Unigroup‘s subsidiary Unisplendour made what is potentially one of the largest investments by a Chinese state-owned enterprise (SOE) in a U.S. company to date when it made a bid for a 15% stake in Western Digital for $3.78 billion.  Both companies are waiting on approval of the deal by U.S. regulators.  If approved, the deal would make Tsinghua Unigroup the largest shareholder in Western Digital.  Around this time, Western Digital began talks to purchase SanDisk Corporation for $19 billion.  Officers of Western Digital stated that the purchasing value of SanDisk is dependent on the finalizing of the equity stake purchase by Tsinghua Unigroup.  Western Digital Chief Executive Steve Milligan believes that the purchase of SanDisk, which would dilute Tsinghua Unigroup‘s stake in the company, will increase the likelihood that U.S. regulators will approve the deal.

The necessity of Tsinghua Unigroup‘s involvement indicates that the Chinese company is providing essential financing for Western Digital‘s purchase of SanDisk.  A possible motivation for this move by Tsinghua Unigroup is its desire to build a Chinese NAND memory powerhouse to compete with industry leader Samsung.  SanDisk is a major manufacturer of NAND technology, as is Micron (a U.S. company the Tsinghua Unigroup tried to purchase in August, but was blocked by U.S. regulators).  NAND memory is used in many electronic devices including digital cameras and cellphones.  Currently Samsung controls half of the NAND market.

Intel recently announced in 2014 that it will be providing $1.6 billion and $5.5 billion to overhaul its chip plants in Chengdu and Dalian, respectively.  The company later announced that it would be converting the Dalian plant to manufacture NAND memory chips.  It is possible the Tsinghua Unigroup is also helping to finance these upgrades, as Intel owns 20% of the Chinese company.  China is the world‘s largest manufacturer of electronic devices that use NAND memory and imports of semiconductors, such as NAND memory, have been the country‘s number one import since 2013.  Its ownership stake in Western Digital will allow Tsinghua access to SanDisk proprietary technology, giving it a stronger position from which to compete with Samsung.