TOKYO (Reuters) - Toshiba Corp 6502.T is in talks with Western Digital Corp WDC.O and Taiwan's Foxconn, as well as with an already preferred bidder, as it seeks to revive a stalled $18 billion sale of its chip business, banking sources said on Tuesday.

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The Japanese conglomerate confirmed it was in talks with suitors, but did not name them, noting it had been unable to reach an agreement by a self-imposed June 28 deadline with its preferred bidder - a group that includes state-backed fund Innovation Network Corp of Japan (INCJ), the Development Bank of Japan (DBJ), U.S. private equity firm Bain Capital and South Korean chipmaker SK Hynix Inc 000660.KS.

A representative for Western Digital declined to comment, and a representative for Foxconn, the world's largest contract electronics maker, formally known as Hon Hai Precision Industry 2317.TW, was not immediately available for comment.

Talks with the preferred consortium have stalled over what sources say are proposals by SK Hynix that it helps fund a deal through convertible bonds - a step that could eventually give it an equity interest in the world’s second-largest maker of NAND flash memory chips.

Toshiba doesn’t want its South Korean rival to have an equity or management influence in the chip business - a stance it has taken to satisfy a Japanese government keen to keep Toshiba’s technology under domestic control.

Toshiba told its creditor banks at a meeting on Tuesday that it had begun talks with alternative bidders because talks with the consortium had stalled, the banking sources said. They didn’t want to be identified as they were not authorized to speak publicly on the matter.

“Toshiba had no option but to say it’s in talks with other suitors because the preferred consortium is falling through,” said another official involved in the talks, who also requested anonymity as those negotiations are sensitive.

Toshiba needs to sell its chip business to plug a hole in its balance sheet by the fiscal year-end in March, to avoid an automatic delisting of its shares from Tokyo’s stock market.

The 140-year-old laptops-to-nuclear conglomerate was still recovering from a $1.3 billion accounting scandal in 2015 when it was hit by billions of dollars of cost overruns at its now bankrupt U.S. nuclear unit Westinghouse in December.

Sources have said that INCJ and DBJ, said to be wary of SK Hynix, could back a deal with Western Digital.

Toshiba executives, though, have been reluctant to consider a deal with Western Digital, with sources saying ties between the two companies have been strained since Western Digital bought SanDisk, Toshiba’s memory chip business partner, in May last year.

Last month, Western Digital sought a U.S. court injunction to prevent Toshiba selling the chip unit without its consent. A hearing on that request is scheduled for Friday.

In July 7 court documents, Western Digital said it matched rival bidders’ offers to buy the flash memory unit - though the actual dollar figure of the bid was redacted.