UPDATE 1-Icahn ups Dynegy stake, offers $2 bln credit line

* Increases stake to 12.9 pct from about 9.95 pct * Says will vote "no" for Blackstone's takeover proposal Nov 12 (Reuters) - Billionaire investor Carl Icahn increased his stake in Dynegy Inc to 12.9 percent, said he will vote against Blackstone's proposal to buy the debt-ridden power company and will offer a $2 billion line of credit to the firm. Private equity firm Blackstone agreed to buy Dynegy in August for $543 million, or $4.7 billion including debt, but the deal must win shareholder approval at a meeting scheduled for Nov. 17. Icahn's opposition to the Blackstone deal adds to the previous objections from Dynegy stakeholder hedge fund Seneca Capital, which owns a 9.29 percent stake in Dynegy. "The Icahn companies, which have billions of dollars of liquidity, will today contact management to make available a $2 billion line of credit if Dynegy management cannot obtain other financing," Icahn said in a regulatory filing. In October, Icahn, who had then built a 9.95 percent stake in Dynegy, said Blackstone's $4.7 billion buyout of the struggling power company was too low, threatening the deal's chances of succeeding in its current form. However, proxy advisory firm ISS recommended that shareholders vote for the company's takeover by Blackstone. Dynegy's shares, which have been roughly flat since Blackstone's proposal, closed Thursday at $4.63 on the New York Stock Exchange. (Reporting by Thyagaraju Adinarayan and Brenton Cordeiro in Bangalore; Editing by Anne Pallivathuckal) Keywords: DYNEGY ICAHN/ (thyagaraju.adinarayan@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: thyagaraju.adinarayan.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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