National security probe complicated Western Digital’s bid for SanDisk

Western Digital Corp. said a Chinese company backed out of a $3.78 billion deal to invest in the disk drive maker, citing a decision by U.S. authorities to investigate the transaction on national security grounds.

The move forced Western Digital WDC, -7.22%   to opt for an alternative cash-and-stock offer for SanDisk Corp. SNDK, -1.58%  , shaving more than $1.8 billion off the deal’s original value. A merger would take the Irvine, Calif., company into the fast-growing market for flash memory chips. Western Digital’s shares slid 7% on the news.