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UPDATE 1-Bain replacing KKR in Japan govt-backed bid for Toshiba chip unit -sources

-sources@

* Bain, Western Digital in group led by Japan state fund -sources

* Western Digital showed proposal to Toshiba recently -sources

* Western Digital has agreed to limit stake to 19.9 pct -sources (Writes through with details of the bid)

SAN FRANCISCO/TOKYO, June 9 (Reuters) - Bain Capital is replacing rival KKR & Co LP in a Japanese government-led consortium bidding for Toshiba Corp's prized chip unit, two sources familiar with the matter said.

Bain would be a minority investor in the consortium, said one of the sources. The consortium, led by state-backed Japan Innovation Network Corp and also including Western Digital Corp , is one of two frontrunners in the race for the world's second biggest producer of NAND flash memory chips.

The sources, who were not authorised to speak to the media and declined to be identified, did not say why the Bain-KKR switch was being made. Bain had previously partnered with South Korean chipmaker SK Hynix in its bid.

Representatives for Bain and SK Hynix declined to comment. A representative for KKR was not immediately available for comment.

Western Digital, which jointly operates a key flash memory chip plant with Toshiba in Japan, recently presented an outline of its proposal to Toshiba, separate sources with knowledge of the matter said.

The Japan-backed consortium is competing with U.S. chipmaker Broadcom Ltd which has partnered with U.S. private equity firm Silver Lake. Some sources say Broadcom may have the upper hand as it has submitted a higher bid that is also likely to invite less anti-trust scrutiny.

The Japan-backed consortium was also seen on the backfoot as Western Digital and Toshiba are at loggerheads over the sale of the chip unit, with the California-based firm claiming breach of contract.

In its bid, Western Digital initially hoped to gain a majority holding, but has agreed to limit its stake to 19.9 percent to appease the government, the sources said.

Toshiba is rushing to find a buyer for the business, which it values at $18 billion or more, to cover billions of dollars in cost overruns at its now-bankrupt U.S. nuclear business Westinghouse Electric Corp. (Reporting by Liana Baker and Junko Fujita; Additional reporting by Makiko Yamazaki in Tokyo and Se Young Lee in Seoul; Editing by Edwina Gibbs)