Blackstone strikes Dynegy deal, sells plants to NRG

* Blackstone to buy Dynegy for $4.50 per share, or $543mln

* No refinancing, debt is substantially unsecured bonds

* Blackstone to sell four Dynegy plants to NRG

* Dynegy shares close up nearly 63 percent to $4.53

* Price is 62 percent premium over Dynegy's Thursday close (Adds details about cash from Dynegy/NRG deal)

By Matt Daily and Megan Davies

NEW YORK (Reuters) - Private equity firm Blackstone Group Friday struck a deal to buy power producer Dynegy Inc for $543 million in cash and sell some of the company's best assets to NRG Energy in the latest shake-up in the electric industry.

The deal values Dynegy at $4.7 billion including debt, which would make it one of the biggest buyouts of a power company since Kohlberg Kravis Roberts, TPG Capital and Goldman Sachs bought power company TXU for $32 billion in 2007.

Dynegy, like other power producers, has been hurt by slack power sales as the weak U.S. economy sapped consumption and pressured prices. The company's shares have lost more than 90 percent of their value since 2001.

"Fleets of older, coal-fired power plants were a license to print money when gas was at $8 (per MMBTU)," said Sanford Bernstein analyst Hugh Wynne. "At much lower gas prices prevailing today... these units are facing very challenging economics."

Blackstone has made other bets on power. It made about six times its money when it, along with other private equity firms, bought and then quickly sold Texas Genco to NRG in 2005. Blackstone was also part of a team which mulled counterbidding for TXU in 2007, a source told Reuters at the time.

The firm invested in independent power producer Sithe Global in 2005. Its energy investments are led by David Foley, who has been at Blackstone since 1995 and was involved in all three deals.

Buyout firms are sitting on lots of unspent capital and have been under pressure to invest those funds. Blackstone said in July that the backlog of deals it was working on was the highest in years, but getting financing remained difficult.

Blackstone's deal for Dynegy is not subject to financing conditions as Blackstone is injecting all the equity to pay the cash part of the deal and assuming Dynegy's debt. The company has $4.66 billion in debt and about $500 million in cash.

A substantial amount of its debt is unsecured bonds, which do not have change of control provisions, a source familiar with the situation said.

That means that Blackstone does not have to refinance the debt. In a normal leveraged buyout situation, the private equity buyers refinance the debt and the buyers have to inject at least 30 percent equity. Blackstone's equity stake in the deal is therefore low by historic standards.

Blackstone also is receiving $1.36 billion in cash, as under a separate agreement it will sell to NRG Energy four natural gas-fired assets currently owned by Dynegy -- among the company's best assets.

Analysts at CreditSights said in a research report that because of these factors, not only is Blackstone not required to put any money into the deal, they could actually get around $800 million back once the deals close.

However, a source familiar with the matter said that after NRG acquires the Dynegy assets, that money stays on Dynegy's balance sheet rather than going to Blackstone itself.

Dynegy shareholders will receive $4.50 cash per share, a 62 percent premium over Dynegy's closing price Thursday, which was an eight-year low.

Shares of Dynegy jumped nearly 63 percent, or $1.75 to $4.53. The company's 7.75 percent bond due 2019 fell 3.5 cents on the dollar to 65.5 cents, according to MarketAxess.

Dynegy's largest shareholder, New York-based investment fund Donald Smith & Co, took a 7.25 percent stake in Dynegy in the quarter ended June 30 when the share price was an average of $5.6492.

FEW RIVAL BIDDERS SEEN

The deal includes a 'go-shop' provision for 40 days when Dynegy can solicit other offers. However, there are no obvious alternative bidders, said analysts at UBS.

"We believe shareholders will gladly accept the bid and do not believe shares should trade at a premium given the lack of obvious alternative bidders," UBS said in a research note.

Dynegy has long sought to merge with a peer, but weak market conditions made winning a deal difficult.

Shares of independent power companies rose. RRI Energy Inc closed up 6.5 percent, Mirant 4.6 percent percent and Calpine Corp 4.6 percent.

REGULATION LITTLE CONCERN

The deal is subject to regulatory approval. While utility deals are difficult to complete because the companies need to pick up regulatory approvals from state and federal regulators, Dynegy's assets are unregulated, so Blackstone's path to approval will be easier than a typical power deal.

Dynegy, which once sought to challenge Enron Corp in the power trading business and even sought to buy the disgraced energy company shortly before its demise, has focused in the last several years on operating its power plants in the Midwest, Northeast and West.

Dynegy sells power to the wholesale markets and operates more than 12,000 megawatts of power plants. Dynegy's remaining assets are a mix of gas-fired and coal plants.

The deal means the the year-to-date value of leveraged buyouts in the U.S. has reached $42.3 billion, the highest level since 2007 and up from just $2.7 billion for the same period last year, according to Thomson Reuters data. It is the largest acquisition by Blackstone since 2007, when the firm acquired Hilton Hotels Corp for $26.7 billion.

Goldman Sachs advised Dynegy. Credit Suisse and Blackstone's advisory unit advised Blackstone. (Reporting by Matt Daily and Megan Davies; additional reporting by Mike Erman; Editing by Derek Caney, John Wallace, Dave Zimmerman and Carol Bishopric)