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A stack of chips sits on a table during the main event at the World Series of Poker Tuesday, July 19, 2011, in Las Vegas. (AP Photo/Isaac Brekken)
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HARD DRIVE

A state-backed Chinese tech company will buy 15% of a major US hard drive maker

By Alice Truong

Deputy editor

From our Obsession

Borders

The consequences of arbitrary lines.

To help China build a homegrown tech industry, one state-backed firm has an unexpected strategy: turn to foreign companies for expertise.

Unisplendour, an arm of Tsinghua Unigroup, has agreed to buy a 15% stake in Western Digital, which would make it the largest shareholder of the US hard drive company, reports Bloomberg. Tsinghua Unigroup is a subsidiary of Tsinghua Holdings, which is fully owned by the state and funded by Tsinghua University in Beijing.

The $3.78 billion deal will allow Unisplendour to nominate a representative to Western Digital’s board, who will remain so long as its ownership doesn’t drop below 10%. Unisplendour agreed to pay $92.50 a share for newly issued stock from Western Digital, a 34% increase from Tuesday’s closing price of $68.87. Investors welcomed the news, shooting shares to $79.44 as of close Wednesday, the stock’s biggest gain in three years.

For Tsinghua, the Western Digital stake is just the latest of a series of deals with US tech firms as it seeks expertise to improve its own technologies, including chip design. Unisplendour paid $2.3 billion in May for a controlling 51% stake in Hewlett-Packard’s data-networking business in China. It also has a joint venture with 21Vianet Group, which operates Microsoft’s cloud services in China, to sell cloud services to state-owned companies. Intel, which is investing $1.5 billion for a 20% stake in Tsinghua, plans to jointly develop chips with the firm for phones in China and other markets.

But several high-profile deals also fell apart this year. In July, Tsinghua put in a $23 billion bid for Silicon Valley chip maker Micron Technology. The deal never came to fruition amid regulatory concerns in the US. San Jose-based Synaptics, which makes touchscreen technology, also recently rebuffed an acquisition offer from the group.

For Western Digital, Unisplendour represents a politically connected ally that could help it overcome regulatory hurdles in China. In 2012, Western Digital purchased Hitachi’s hard drive unit for $4.8 billion, which the Chinese government approved on condition of the two companies being run as separate entities. Western Digital is hoping to merge the two businesses and put in a request with the government to do so last year.

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