Beijing-based tech company Unisplendour Corp Ltd has pulled out of a proposed $3.8 billion investment in the US disk drive maker Western Digital Corp because the Chinese firm deems the US government would not approve the deal.

Unisplendour, a subsidiary of State-owned conglomerate Tsinghua Holdings Co Ltd, said on Wednesday the decision was made after the Committee on Foreign Investment in the United States, a government organization that reviews foreign investments in US businesses, announced it will investigate the deal for security reasons.

The Chinese company had been attempting to purchase a 15 percent stake in Western Digital since September. The deal would have made Unisplendour Western Digital's largest shareholder and given it a board seat in the California-based company which sells hard drives to a long list of US government agencies.

Unisplendour is still finding ways to work with Western Digital. The companies said they will set up a $158 million software joint venture, with the Chinese firm holding a 51 percent stake.

The collapse of the deal sent the Shenzhen-listed Unisplendour stock down, dropping 5.78 percent to close at 66.52 yuan ($10.18) on Wednesday.

The move had a greater impact on Western Digital, which is bidding for flash-memory giant SanDisk Corp. The company trimmed its offer to $15.8 billion in cash and stock, sharply down from the original offer of $19 billion.

Shares of the two companies also went down.

"Unisplendour pulled out of the transaction because it was concerned that CFIUS would disapprove the acquisition of (the) Western Digital (stake). We do not know if there was a possible mitigation that would have satisfied CFIUS, but was unacceptable to Unisplendour," said Theodore Moran, senior fellow and principal CFIUS investigator at the Peterson Institute for International Economics in Washington.

It was the third time this year that an investment plan was stranded because of security concerns from the US.

Gene Cao, principle analyst at Forrester Research Inc, said the scrapped deal adds uncertainties to future tech acquisitions.

"Recent failed acquisitions underlined Chinese technology companies will find increasing difficulty when buying out a US firm in both hardware and software segments," Cao said.

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