NEW YORK (

TheStreet

) --

Dynegy

(DYN)

shares skyrocketed shortly after 2 p.m. on Tuesday afternoon, when reports surfaced that the Blackstone Group would raise its bid for the struggling energy company to $5.

The new offer from Blackstone was an 11% premium over its existing offer for Dynegy. The LBO group said in its press release confirming the new offer, "Blackstone has notified Dynegy's Board of Directors that this proposed $5.00 per share cash price represents Blackstone's best and final offer and remains subject to agreement to the terms of an amended merger agreement. "

Dynegy has been trading based on the outlook for the LBO buyout proposed by the Blackstone Group more than any market sentiment. Activist investor

Carl Icahn

had challenged the deal, and hedge fund Seneca Capital has bolstered Icahn's opinion that the price being offered for Dynegy is too low.

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Dynegy shareholders will vote tomorrow on whether to accept the $5 per-share buyout offer from Blackstone, or place a wager on the company providing a comeback in its current structure.

Dynegy shares received a boost last Friday when an analyst said that Blackstone might increase its bid for the energy wholesaler. Blackstone, before upping its bid to $5, had said as late as Monday that it wouldn't budge from its $4.50 per Dynegy share offer. However, Dynegy shares were trading above the Blackstone offer price this week due to the pressure being applied by Icahn and Seneca Capital.

On Tuesday morning, there were reports that Seneca Capital might make a $6 bid for Dynegy.

-- Written by Eric Rosenbaum from New York.

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