(Adds comments from Toshiba disputing Western Digital CEO remarks)
Oct 26 (Reuters) - Western Digital Corp said on Thursday it rejected demands from Toshiba Corp that it drop a set of legal rights that Western Digital believes would allow the company to block Toshiba's $18 billion sale of its memory chip unit to SK Hynix as part of negotiations over a joint chip investment between Toshiba and Western Digital.
Because of the impasse over the terms, Western Digital does not believe it will take part in a coming round of investment in Toshiba's so-called Fab 6 chip factory in Yokkaichi, Japan.
Toshiba disputed Western Digital's account of the talks, saying in a statement Friday morning to Reuters that it was "untrue" that Toshiba had asked for such terms.
Western Digital Chief Executive Officer Steve Milligan made the comments on an investor call for the fiscal first quarter. The company posted a net income of $681 million, or $2.23 per share, in the first quarter ended Sept. 29, compared with a net loss of $366 million, or $1.28 per share, a year earlier. Shares were down 2.2 percent after hours at $87.40.
After a long, contentious auction, Toshiba agreed last month to sell its prized chip unit to a consortium led by Bain Capital LP, overcoming a hurdle as it scrambles for funds to cover billions of dollars in liabilities arising from its now bankrupt U.S. nuclear unit Westinghouse.
Western Digital, which became Toshiba's chip venture partner when it acquired SanDisk last year, has sought an injunction with the International Court of Arbitration, arguing that any deal will need its consent.
While the conflict over the merger plays out, Toshiba has moved forward with plans to invest in its new Fab 6 facility. Toshiba made an initial $1.7 billion investment in the factory this year, a move Western Digital is contesting in an arbitration proceeding because it believes it was entitled to participate.
This month, Toshiba said it was in discussions for a second, $980 million round of investment in the facility. Milligan revealed some details of those negotiations on Western Digital's investor call.
"We will not agree to terms such as SanDisk unilaterally waiving or negating its consent rights as a condition to participate, which is what Toshiba has proposed. Consequently, at this time, we are not confident that an agreement would be reached on this next investment tranche either," Milligan said.
Toshiba disputed that account. "The statement by 1/8Western Digital 3/8 is untrue," Toshiba said in a statement. Toshiba "has never conditioned joint investment in Fab 6 on 1/8Western Digital subsidiary 3/8 SanDisk 'unilaterally waiving or negating its consent rights."'
Both Toshiba and Bain Capital LP, SK Hynix's financial backer in the merger, have repeatedly said they believe Western Digital's consent rights are limited and do not give it the power to stop a deal. (Reporting by Stephen Nellis; Editing by Grant McCool, David Gregorio and Frances Kerry)