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S&P Places 'Negative' CreditWatch on Black Hills Following NW Secrecy Pact

Despite improved fourth-quarter earnings results reported earlier in the week, Rapid City, SD-based Black Hills Corp. was placed on "CreditWatch with Negative implications" by Standard & Poor's Ratings Services, noting the company's signing of a confidentiality agreement with NorthWestern Corp. as the trigger. Black Hills' credit rating remains the same (BBB-).

"If following its strategic review, NorthWestern (BB/Watch "developing") rejects Black Hills' [merger] offer, S&P would take Black Hills off CreditWatch, the S&P analyst Jeanny Silva said. "If NorthWestern decides to accept Black Hills' offer, S&P would keep the company on CreditWatch until transaction specifics (including financing specifics) were made available and appropriate regulatory approvals were obtained.

S&P described Black Hills' Nov. 23 offer to merge with NorthWestern as an "attractive stock-for-stock merger proposal" with potential for part of the sales price to be cash.

Black Hills last Tuesday reported an upswing in fourth quarter 2005 profits, although still down for the full year. At the same time, the company said it has entered into a confidentiality agreement with NorthWestern, its South Dakota-based utility holding company neighbor. NorthWestern earlier in the day had announced the same thing, with the caveat that it hasn't reached any conclusions about this or other options now before the company.

The confidentiality agreement, which is reportedly one of several NorthWestern may have signed with suitors, allows the two companies to mutually go through due diligence to determine if a merger would be materially beneficial to both sets of shareholders and both sets of utility customers.

As part of Black Hills' formal year-end earnings announcement, CEO David Emery said his company remains "committed to our offer for a proposed combination with NorthWestern, provided that the combination maximizes shareholder value and strengthens the long-term strategy of both companies." While outlining various operating challenges on the coal mining and generation parts of Black Hills, Emery said he is "excited about all our opportunities to expand our regional energy presence and increase shareholder returns."

Black Hills reported net income for the final quarter of last year ended Dec. 31 of $26.6 million, or 79 cents/share, compared to $19.4 million, or 59 cents/share, for the same period in 2004, and income from continuing operations was identical for last year's final quarter, but was slightly better in the fourth quarter of 2004 ($21.1 million, or 64 cents/share). For the full year in 2005, net income was $33.2 million, or $1.07/share, compared to $57.6 million, or $1.86/share, for all of 2004.

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