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and leveraged buyout firm

Blackstone Group

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are throwing in the towel on a deal to take the power producer private, after failing to garner enough shareholder support.

The Dynegy-Blackstone proposal pitted the leveraged buyout specialists against activist investor

Carl Icahn

and hedge fund Seneca Capital, both shareholders of Dynegy.

Icahn and Seneca had stated that Blackstone wasn't offering enough for Dynegy, leading to a raised bid from the leveraged buyout group, from $4.50 per share to $5 per Dynegy share.

Seneca Capital has said during the battle it would offer as much as $6 per Dynegy share.

In a statement on Tuesday morning, Dynegy said, "We will immediately engage interested parties, including Seneca Capital and Icahn Associates, who may have an interest in making an offer to acquire Dynegy."

David Foley, senior managing director of the Blackstone Group, commenting on the termination, said: "While we are disappointed by Seneca Capital's and Carl Icahn's opposition to our 'best and final' proposal of $5.00 per share, we appreciate the efforts made by Dynegy to communicate the merits of our offer, and we extend best wishes to Dynegy as it continues to pursue its exploration of strategic alternatives."

Dynegy shares were down between 2% and 3%n in early trading on Tuesday.

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The failure of the Dynegy-Blackstone deal also raises doubts about the planned purchase of Dynegy power plants by

NRG Energy

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, which had agreed to buy one-third of Dynegy's production, concurrent with the Blackstone buyout.

NRG Energy CEO David Crane had told

Dow Jones

last week that NRG was committed to spending close to $1.4 billion to buy a portion of Dynegy's production as long as the Blackstone deal was completed, but if the Blackstone deal fell through, NRG would look to spend its capital elsewhere. "We just don't want it to go on for months and months," Crane had said to Dow Jones during the battle between Icahn, Seneca and Blackstone.

-- Written by Eric Rosenbaum from New York.

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