Unisplendour From China to Buy 15% Stake in Western Digital for $3.775 Billion

Western Digital  Corporation and Unisplendour Corporation Limited (Unis) have entered into an agreement under which a subsidiary of Unis will make a $3.775 billion equity investment in Western Digital.

Under the terms of the investment, Unis has agreed to purchase newly issued Western Digital common stock at a price of $92.50 per share.

Immediately following the closing of the investment, Unis will hold approximately 15% of Western Digital’s issued and outstanding shares of common stock based on the number of issued and outstanding shares as of Sept. 25, 2015.

Unis will have the right to nominate one representative to the Western Digital board of directors and will be subject to a five-year position standstill and voting restrictions.

The board representative right terminates if Unis’ ownership falls below 10%. In addition, Unis has agreed to a five-year lock-up on its shares, with a limited number of shares becoming available for transfer each year.

Proceeds from the investment will go toward strengthening Western Digital’s balance sheet, providing financial flexibility and pursuing long-term strategic growth initiatives.

“The equity investment by Unis will help facilitate our growth as we look to capitalize on the many opportunities and changes within the global storage industry,” said Steve Milligan, president and CEO, Western Digital. “This investment reflects Unis’ strong support for Western Digital’s value-creation efforts.”
 
“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 U.S. companies to work together for success,” said Weiguo Zhao, chairman, Tsinghua Unigroup and Unisplendour Corporation.

The closing of this investment transaction is subject to certain regulatory approvals and other customary closing conditions.

Wells Fargo Securities, LLC has acted as the financial advisor to Western Digital

About Unisplendour
As an information technology company in China, Unisplendour Corporation Limited (Unis, 000938.SZ) is dedicated to research, development, production, sales and service of IT products and solutions. Centered by its ‘cloud-network-endpoint’ strategy, Unis’ business has covered a broad range from servers, storage, networking equipment to IT service, application development and system integration, and is expanding to cloud computing, mobile Internet and big data processing.

 
Q&A

What is being announced?
Western Digital is announcing a $3.775 billion equity investment by a subsidiary of China-based technology company Unisplendour Corporation Limited (Unis). Under the terms of the agreement, Unis has agreed to purchase newly issued Western Digital common stock at a price of $92.50 per share. The investment represents an approximately 15% non-controlling equity stake in Western Digital based on the number of issued and outstanding shares as of September 25, 2015, including 40,814,802 newly issued shares. Unis will have the right to nominate one representative to the Western Digital board of directors and will be subject to a five-year position standstill and voting restrictions. The board representative right terminates if Unis’s ownership falls below 10%.
 
Who is Unis?
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. Unis has a positive track-record of working with other global technology companies, including Intel and HP. Intel made a $1.5 billion investment in Unis in September 2014. As announced in May 2015, Unis is also seeking a $2.3 billion acquisition of 51% of HP’s H3C business which operates primarily in China.
 
What is Western Digital going to do with the proceeds from the investment?
Capital from the investment will be used to strengthen Western Digital’s balance sheet, provide financial flexibility and pursue long-term strategic growth initiatives, in the United States and abroad.
 
Will this infusion of cash change your capital allocation policy?
There is no change to the company’s capital allocation policy in connection with this investment.
 
What are Unis’s voting restrictions?
As a shareholder of Western Digital, Unis will be obligated to vote its shares in accordance with Western Digital’s board recommendation on multiple significant matters. Unis’s board member will be restricted from participating in discussions that involve government contracts, sales or products and services, and other such sensitive matters.
 
When is the transaction expected to close?
The regulatory approval process after execution could take between 45-90 days, or potentially longer. Therefore, we expect the transaction to close late this calendar year or first quarter 2016.
 
Is there a shareholder vote required by Western Digital shareholders?
No, a shareholder vote is not required by Western Digital shareholders.

How does this investment impact existing shareholders?
The investment by Unis is a significant opportunity to create long-term value for our shareholders. We believe our shareholders will greatly benefit from our strengthened balance sheet, financial flexibility and long-term strategic growth initiatives as a result of this investment.
 
Are there anticipated hurdles related to this transaction?
The investment is subject to certain customary closing conditions, including regulatory approvals and filings and approval of the investment by Unis’s shareholders. The 15% ownership stake is non-controlling, so we do not believe it is subject to CFIUS review. However, we will be filing with CFIUS out of an abundance of caution.
 
Are Western Digital’s IP and trade secrets protected?
Yes. 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. While Unis would have the right to nominate one board member, that board member would be restricted from participating in discussions that involve government contracts, sales, or products and services and other such sensitive matters.
 
What are the tax implications of Unis’s investment in Western Digital?
There will be no tax impact to Western Digital.