It looks like the US government just scared off a huge Chinese investor

Western Digital’s plans to buy flash memory giant SanDisk ran into a hitch on Tuesday after one of the deal’s financial backers decided to walk away.

China’s Tsinghua Unisplendour Corp. was going to become Western Digital’s largest shareholders with a $3.78 billion investment in the storage-hardware maker.

This all came to an end when the Treasury Department’s Committee on Foreign Investment in the United States, or CFIUS, said it would investigate the deal.

The takeover of SanDisk isn’t dead, but the price did just get slashed. Irvine, California-based Western Digital will still go ahead without Unis, but pay $15.8 billion in cash and stock, down from the $19 billion previously announced.

CFIUS was created to vet deals for any national-security issues. It recently prevented the $3.3 billion sale of Philips’ lighting business to a group of buyers in Asia, but its reasons for blocking that deal weren’t disclosed.

It’s also expected to investigate the potential purchase of the Chicago Stock Exchange by a Chinese-led investor group.

Chinese companies have been buying up foreign companies — including American ones — at an unprecedented rate in 2016, and it’s starting to worry lawmakers.

Here’s the press release:

IRVINE, Calif., Feb. 23, 2016 /PRNewswire/ — Western Digital® Corporation (NASDAQ: WDC) today announced its agreement with Unisplendour Corporation Limited (Unis), and Unis Union Information System Ltd. (Unis Union), a subsidiary of Unis that agreed to make a $3.775 billion equity investment in Western Digital, has been terminated by Unis Union after a decision by the Committee on Foreign Investment in the United States (CFIUS) to conduct an investigation into the proposed investment. Western Digital affirmed its commitment to the acquisition of SanDisk Corporation (NASDAQ: SNDK) and announced that the shareholders of SanDisk will receive the alternate merger consideration as outlined in the merger agreement. Western Digital believes the combination is compelling and will create significant value for its shareholders.

Under the terms of the merger agreement with SanDisk announced on Oct. 21, 2015, if the transaction with Unis Union and Unisplendour has not closed or has been terminated by the time of the consummation of the merger, Western Digital will pay $67.50per share in cash and 0.2387 shares of Western Digital common stock per share of SanDisk common stock. This alternate merger consideration is in lieu of the consideration that would have been paid if the Unis Union investment had closed. The alternate merger consideration values SanDisk at $78.50 per share based on Western Digital’s closing share price on Feb. 22, 2016.

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 Defence Production Act, triggering a 15-day period during which either Western Digital or Unis Union may terminate the stock purchase agreement.

As a result, Unis Union has informed Western Digital that it has decided to terminate the agreement under which Unis Union would have acquired a 15% equity stake in Western Digital for $3.775 billion through the purchase of newly issued Western Digital common stock at a price of $92.50 per share. None of Western Digital, Unis or Unis Union will incur a termination fee as a result of the termination.

Western Digital and Unis continue to have a strong strategic relationship and their joint venture agreement in China announced on Nov. 9, 2015 remains on track to become operational by the second calendar quarter of 2016, pending regulatory approvals.

“We continue to look forward to our transformational combination with SanDisk and capitalising 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,” said Steve Milligan, chief executive officer of Western Digital. “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. The alternate merger consideration continues to create significant value for both sets of shareholders and will allow us to maintain our financial flexibility.”

Western Digital maintains an open dialogue with its shareholders and looks forward to continued engagement with them.

The combination with SanDisk will continue to transform Western Digital into a storage solutions company with global scale, extensive product and technology assets and deep expertise in non-volatile memory (NVM). Western Digital will double its addressable market and expand its participation in the higher-growth solid state drive industry. The combination will enable a strong solutions capability and provide Western Digital with stable NAND supply at scale.

The company expects significant synergies from vertical integration and additional cost savings from the transaction which are expected to drive additional shareholder value. Western Digital expects to achieve total annual run-rate synergies of $500 million within 18 months post-closing and approximately $1.1 billion by 2020. Coupled with the significant synergies from the HGST integration, the combined company will have a highly attractive margin profile and strong cash flow generation. In addition, Western Digital expects to achieve rapid deleveraging, reducing debt by $3 billion within a short period of time after the closing of the transaction.

Western Digital continues to expect the transaction with SanDisk to close during the second calendar quarter of 2016 and has received regulatory approvals in the U.S., EU, Singapore, Japan, Taiwan, South Korea and Turkey. The transaction remains subject to other customary closing conditions, including receipt of shareholder approvals from both companies and regulatory approvals in other jurisdictions.

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