Lear Buyout Scrapped

Updated from 2:04 p.m. EDT

After executives at Lear (LEA Quote) did their best to sell the company to billionaire investor Carl Icahn in a deal that promised them a handsome payoff, the auto-parts supplier's shareholders voted for them to get back to work.

A majority of Lear's shareholders voted to block a $2.9 billion buyout offer for the company from American Real Estate Partners(ACP Quote), an Icahn affiliate, in a special meeting held Monday to vote on the deal.

The rejection came despite a sweetened bid from Icahn, who last week agreed to raise his buyout price to $37.25 a share from $36. Having already won approval from the company's board of directors and its top executives, Icahn had previously refused to bolster his offer in the face of criticism from major shareholders.

When it became apparent that shareholders might block the deal, the company negotiated with Icahn for the higher price, and it postponed the vote until the week after its annual meeting in hopes of garnering more support.

In return for more premium, Lear agreed to allow Icahn to increase his stake in the company to 27% from 24% without triggering legal provisions in place to block a takeover attempt. The company already let him exceed the original 15% limit last October.

Also, the company agreed to pay Icahn a break-up fee in the event that the deal is rejected. So now, shareholders are on the hook to pay $12.5 million in cash and 335,570 shares of Lear common stock valued at $12.5 million.