BC-DYNEGY-BLACKSTONE/ (UPDATE 4)

UPDATE 4-Dynegy delays vote tally on Blackstone deal

+ Blackstone raised bid at 11th hour to $5/share

+ Proposed deal has faced opposition from Icahn

+ Dynegy shares up 1.4 percent at $5.09

+ Delay indicates the company lacked votes for deal

(Rewrites first paragraph; adds shareholder comment, background; updates share price)

By Anna Driver and Eileen O'Grady

HOUSTON (Reuters) – A shareholder meeting to vote on Blackstone Group's proposed takeover of Dynegy Inc was recessed yesterday, indicating the power producer lacked the votes to approve the deal.

The extra time came the day after Blackstone raised its bid for Dynegy by 11 percent to about $602 million to try to gain enough shareholder support to get the deal through.

"We will leave the polls open to let investors consider changes in the merger agreement announced yesterday," Dynegy CEO Bruce Williamson said at the meeting.

About 50 people attended the meeting at the company's headquarters in a green-glass Houston skyscraper.

Dynegy gave no indication of which way the voting had gone.

Dynegy's board supports the deal, saying the company will face severe financial hardship if shareholders vote against it.

The once high-flying Dynegy — which aborted an ill-conceived rescue of Enron Corp in late 2001 — has been working to restructure by selling natural gas assets, refinancing its massive debt and refocusing on power generation.

Bette Schwager, who represents Dynegy shareholder Glacier Capital, a firm that supported the deal, attended to find out vote totals.

"I came here trying to get some answers, but didn't," Schwager said.

Blackstone's increased bid came after fierce opposition to the deal from the power company's two largest shareholders, billionaire Carl Icahn and hedge fund Seneca Capital. Both argue that the new offer is still too low.

Blackstone, which had insisted for weeks that its $4.50-per-share bid was "full and fair," reversed course the day before the scheduled stockholder vote on the deal, saying its "best and final offer" was now $5 a share.

Shares of Dynegy were up 1.4 percent at $5.09 in afternoon trading.