As Of               Filer                 Filing     As/For/On Docs:Pgs

 6/28/06  Northwestern Corp                 DEFM14A     6/28/06    1:218

Document/Exhibit                   Description                      Pages   Size 

 1: DEFM14A     Definitive Proxy Statement 062706                   HTML  1,172K 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No. )

 

Filed by the Registrant  x

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

[	]	Preliminary Proxy Statement
[	]	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[ X ]		Definitive Proxy Statement
[	]	Definitive Additional Materials
[	]	Soliciting Material Pursuant to §240.14a-12

 

NorthWestern Corporation

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):
o	No fee required.
o	Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
	(1)		Title of each class of securities to which transaction applies:
	(2)		Aggregate number of securities to which transaction applies:
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
	(4)		Proposed maximum aggregate value of transaction:
	(5)		Total fee paid:
x	Fee paid previously with preliminary materials.  $145,898.75
o	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
	(1)	Amount Previously Paid:
	(2)	Form, Schedule or Registration Statement No.:
	(3)	Filing Party:
	(4)	Date Filed:
		Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

 

 

 

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2006

Notice of Annual Meeting

and

Proxy Statement

 

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NorthWestern Corporation

d/b/a NorthWestern Energy

125 S. Dakota Ave.

Sioux Falls, SD 57104

www.northwesternenergy.com

 

June 28, 2006

 

Dear NorthWestern Stockholder:

You are cordially invited to attend the 2006 annual meeting of stockholders of NorthWestern Corporation, which will be held at the Sioux Falls Convention Center, 1201 N. West Avenue, Sioux Falls, South Dakota, on Wednesday, August 2, 2006, at 2:00 p.m. local time.

On April 25, 2006, our board of directors approved a merger agreement providing for the acquisition of NorthWestern by Babcock & Brown Infrastructure Limited, an Australian public company, or BBIL. If the merger is completed, you will be entitled to receive $37.00 in cash, without interest, for each share of our common stock that you own.

At the annual meeting, you will be asked to adopt the merger agreement and to elect directors, among other matters. After careful consideration, the board of directors unanimously (i) approved the merger agreement, (ii) determined that the merger is advisable and is fair to, and in the best interests of, NorthWestern and its stockholders and (iii) recommends that NorthWestern stockholders vote “FOR” adoption of the merger agreement.

The proxy statement included with this letter provides you with information about the annual meeting, the merger agreement, the proposed merger and other related matters. We encourage you to read the entire proxy statement carefully. You also may obtain more information about NorthWestern from documents we have filed with the Securities and Exchange Commission, or SEC.

Your vote is very important. The merger cannot be completed unless we receive the affirmative vote of holders holding a majority of the shares of our common stock outstanding at the close of business on the record date and entitled to vote. The completion of the merger is also subject to the satisfaction or waiver of other conditions, including receipt of required regulatory approvals. If you fail to vote on the merger agreement, the effect will be the same as a vote against the adoption of the merger agreement.

Whether or not you plan to attend the annual meeting, please take the time to submit a proxy by following the instructions on your proxy card as soon as possible. If your shares are held in an account at a brokerage firm, bank or other nominee, you should instruct your broker, bank or other nominee how to vote in accordance with the voting instruction form furnished by your broker, bank or other nominee. If you do not vote or do not instruct your broker, bank or other nominee how to vote, it will have the same effect as voting against the adoption of the merger agreement.

 

 

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If you properly transmit your proxy and do not indicate how you want to vote, your proxy will be voted “FOR” the adoption of the merger agreement and “FOR” the other matters set forth in the accompanying notice of annual meeting, including any proposal to adjourn the annual meeting to a later date to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement.

I enthusiastically support this transaction and join the other members of our board of directors in recommending that you vote for the adoption of the merger agreement.

Thank you for your continued support of NorthWestern Corporation.

Very truly yours,

Michael J. Hanson

President and Chief Executive Officer

 

Neither the SEC nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

THIS PROXY STATEMENT IS DATED JUNE 28, 2006,

AND IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT JUNE 28, 2006.

 

 

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NorthWestern Corporation

d/b/a NorthWestern Energy

125 S. Dakota Avenue, Sioux Falls, South Dakota 57104

 

Notice of Annual Meeting of Stockholders

August 2, 2006

 

To Our Stockholders:

The 2006 annual meeting of stockholders of NorthWestern Corporation, a Delaware corporation, will be held on August 2, 2006, beginning at 2:00 p.m. Central Daylight Time at the Sioux Falls Convention Center, 1201 N. West Avenue, Sioux Falls, South Dakota, to consider and vote upon the following proposals:

1.

To adopt the Agreement and Plan of Merger, dated as of April 25, 2006, among Babcock & Brown Infrastructure Limited, an Australian public company (“BBIL”), BBI US Holdings Pty Ltd., an Australian company and a direct wholly owned subsidiary of BBIL (“Holding Company”), BBI US Holdings II Corp., a Delaware corporation and direct wholly owned direct subsidiary of Holding Company (“Holdings”), BBI Glacier Corp., a Delaware corporation and direct wholly owned subsidiary of Holdings (“Sub”), and the Company, as the same may be amended from time to time, pursuant to which, among other things, (i) Sub will merge with and into NorthWestern upon the terms and subject to the conditions set forth in the merger agreement, with NorthWestern continuing as the surviving corporation, and (ii) upon consummation of the merger, each issued and outstanding share of NorthWestern common stock will be converted into the right to receive a cash payment of $37.00, without interest.

2.

To elect seven (7) members of our board of directors to hold office until the annual meeting of stockholders in 2007 and until their successors are duly elected and qualified or the merger is completed, whichever is earlier;

3.

To ratify the appointment by the audit committee of our board of directors of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 31, 2006;

4.

Any proposal to adjourn the annual meeting to a later date to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement; and

5.

To transact any other business as may properly come before the annual meeting and any adjournment or postponement of the annual meeting.

Our board of directors has fixed the close of business on June 5, 2006, as the record date for determining the stockholders entitled to receive notice of and to attend and vote at the annual meeting and any adjournments or postponements of the annual meeting. A complete list of NorthWestern stockholders will be available at our executive offices at 125 S. Dakota Ave., Sioux Falls, South Dakota, for 10 days before the annual meeting and will also be available for inspection at the annual meeting itself.

 

 

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You are cordially invited to attend the annual meeting in person. An admission ticket is enclosed with this proxy statement. The annual meeting is open to stockholders and those guests invited by us. Stockholders may be asked to provide photo identification, such as a driver’s license, in order to gain admittance to the annual meeting. If you wish to attend the annual meeting and your shares are held in an account at a brokerage firm, bank or other nominee (i.e., in “street name”), you will need to bring a copy of your brokerage statement or other documentation reflecting your stock ownership as of the record date. For additional information about attendance at the annual meeting, please refer to Annual Meeting Guidelines included with this proxy statement as Annex F.

Your vote is very important. Please submit your proxy or voting instructions as soon as possible to make sure that your shares are represented and voted at the annual meeting, whether or not you plan to attend the annual meeting. Whether you attend the annual meeting or not, you may revoke a proxy at any time before it is voted by filing with our corporate secretary a duly executed revocation of proxy, by properly submitting a proxy by mail with a later date or by appearing at the annual meeting and voting in person. You may revoke a proxy by any of these methods, regardless of the method used to deliver your previous proxy. Attendance at the annual meeting without voting will not itself revoke a proxy. If your shares are held in an account at a brokerage firm, bank or other nominee, you must contact your broker, bank or other nominee to revoke your proxy.

Under Delaware law, if the merger is completed, our stockholders who do not vote in favor of adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares of our common stock as determined by the Delaware Court of Chancery, but only if they submit a written demand for such an appraisal prior to the vote on the merger agreement and they comply with other Delaware law procedures and requirements explained in the accompanying proxy statement. The procedures are described more fully in the accompanying proxy statement, and a copy of the applicable Delaware law provision is included as Annex D to the proxy statement.

For more information about the merger described above and the other transactions contemplated by the merger agreement, please review the accompanying proxy statement and the merger agreement included with it as Annex A. The proposals to elect seven (7) directors to serve on our board of directors, to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2006, and to adjourn the annual meeting to a later date to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement are also described in detail in the accompanying proxy statement.

By Order of the Board of Directors,

Thomas J. Knapp

Vice President, General Counsel and Corporate Secretary

 

 

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SUMMARY VOTING INSTRUCTIONS

YOUR VOTE IS IMPORTANT

Ensure that your shares of NorthWestern common stock can be voted at the annual meeting by submitting your proxy or contacting your broker, bank or other nominee. If you do not vote or do not instruct your broker, bank or other nominee how to vote, it will have the same effect as voting “AGAINST” the adoption of the merger agreement.

If your NorthWestern shares are registered in the name of a broker, bank or other nominee, check the voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that your shares are voted on the proposals at the annual meeting.

If your NorthWestern shares are registered in your name, submit your proxy by signing, dating and returning the enclosed proxy card in the enclosed postage-paid envelope, so that your shares can be voted on the proposals at the annual meeting.

If you need assistance in completing your proxy card or have questions regarding the NorthWestern annual meeting, please contact:

NorthWestern Corporation
Dan Rausch Director – Investor Relations (605) 978-2902	or	Tammy Lydic Assistant Corporate Secretary (605) 978-2913
Innisfree M&A Incorporated
Stockholders: (888) 750-5834 (toll-free)		Banks and Brokers: (212) 750-5833 (call collect)

 

 

 

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TABLE OF CONTENTS

 

Page

 

 

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE MERGER	1
SUMMARY TERM SHEET ABOUT THE MERGER	8
FORWARD-LOOKING INFORMATION	16
THE NORTHWESTERN CORPORATION ANNUAL MEETING	17
Date, Time and Place	17
Purpose of the Annual Meeting	17
Recommendation of Our Board of Directors	17
Record Date; Stockholders Entitled to Vote; Quorum	17
Vote Required	18
Voting by Our Directors and Executive Officers	19
Voting Procedures	19
Adjournments; Other Business	19
Revocation of Proxies	20
Solicitation of Proxies	20
Appraisal Rights	20
Assistance	20
PROPOSAL 1 – ADOPTION OF THE MERGER AGREEMENT	21
THE MERGER	21
The Companies	21
Structure of Transaction	23
Management and Board of Directors of the Surviving Corporation	25
Background of the Merger	25
Recommendation of Our Board of Directors; Our Reasons for the Merger	37
Opinion of Credit Suisse Securities (USA) LLC	39
Opinion of The Blackstone Group L.P.	45
Certain Effects of the Merger	51
Dividends	51
Interests of Our Directors and Executive Officers in the Merger	51
Regulatory Matters	55
Appraisal Rights	57

 

 

 

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TABLE OF CONTENTS

(continued)

Page

 

 

 

Material United States Federal Income Tax Consequences	60
Consequences of the Merger to United States Holders of Our Common Stock	61
Consequences of the Merger to Non-United States Holders of Our Common Stock	62
Accounting Treatment	63
Delisting and Deregistration of NorthWestern Common Stock	63
Financing	63
Litigation Related to the Merger	65
THE MERGER AGREEMENT	66
The Merger	66
Completion of the Merger	66
Certificate of Incorporation, Bylaws and  Directors and Officers of the Surviving Corporation	67
Conversion of Stock	67
Payment for Shares	68
Transfer of Shares	68
Treatment of Warrants and Deferred Stock Units	69
Representations and Warranties	69
Conduct of Our Business Pending the Merger	72
Stockholders’ Meeting; Proxy Statement	74
Covenant to Recommend	75
No Solicitation	76
Access to Information; Confidentiality	77
Regulatory Matters; Reasonable Best Efforts	77
Fee and Expenses	78
Public Announcements	78
Notification of Certain Matters	78
Employee Benefit Matters	78
Delisting	79
Rule 16b-3	80
BBIL Financing	80
No Agreement with NorthWestern Stockholders	80

 

 

 

-ii-

 

 

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TABLE OF CONTENTS

(continued)

Page

 

 

 

Irrevocable Letter of Credit			80
Conditions to the Merger			81
Termination			82
Termination Fee and Business Interruption Fee			83
Amendment and Waiver			83
AMENDMENT TO NORTHWESTERN’S STOCKHOLDER RIGHTS PLAN			84
MARKET PRICES OF COMMON STOCK AND DIVIDENDS			85
PROPOSAL 2 – ELECTION OF DIRECTORS			86
BENEFICIAL OWNERSHIP OF COMMON STOCK			88
MEETINGS OF OUR BOARD OF DIRECTORS AND COMMITTEES			89
EXECUTIVE OFFICERS			91
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS			92
REPORT OF HUMAN RESOURCES COMMITTEE ON EXECUTIVE COMPENSATION			97
AUDIT COMMITTEE REPORT			100
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE			101
PERFORMANCE GRAPH			101
PROPOSAL 3 – RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			102
PROPOSAL 4 – ADJOURNMENT OF THE ANNUAL MEETING			103
STOCKHOLDER PROPOSALS			104
COMMUNICATIONS WITH OUR BOARD OF DIRECTORS			104
OTHER MATTERS			105
	ANNEX A	Agreement and Plan of Merger, dated as of April 25, 2006, among Babcock & Brown Infrastructure Limited, BBI US Holdings Pty Ltd., BBI US Holdings II Corp., BBI Glacier Corp. and NorthWestern Corporation
	ANNEX B	Opinion of Credit Suisse Securities (USA) LLC
	ANNEX C	Opinion of The Blackstone Group L.P.
	ANNEX D	Section 262 of the General Corporation Law of the State of Delaware
	ANNEX E	Audit Committee Charter
	ANNEX F	Annual Meeting Guidelines

 

 

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 QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE MERGER

The following questions and answers briefly address some questions you may have regarding the annual meeting and the proposed merger. These questions and answers may not address all questions that may be important to you as a stockholder of NorthWestern. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement, and the documents referred to or incorporated by reference in this proxy statement.

Q:	What matters will you vote on at the annual meeting?

A:	You will vote on the following proposals:

•

to adopt the merger agreement;

•

to elect seven (7) directors to serve on our board of directors;

•

to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2006;

•

to approve any proposal to adjourn the annual meeting to a later date to solicit additional proxies if there are insufficient votes at the time of the annual meeting to adopt the merger agreement; and

•

to transact any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting.

On April 25, 2006, we entered into a merger agreement with BBIL. Under the merger agreement, we will become a wholly owned indirect subsidiary of BBIL, and holders of our common stock will be entitled to receive $37.00 per share in cash, without interest.

In order to complete the merger, the stockholders holding a majority of the shares of our common stock outstanding at the close of business on the record date and entitled to vote must vote to adopt the merger agreement. We are holding the annual meeting of our stockholders to obtain this and other approvals. This proxy statement contains important information about the merger and the annual meeting, and you should read it carefully. The enclosed voting materials allow you to vote your shares without attending the annual meeting.

At this time, our board of directors is unaware of any matters, other than as set forth above, that may be presented for action at our annual meeting. If other matters are properly presented, however, the persons named as proxies will vote in accordance with their judgment with respect to such matters.

Q:	As a stockholder, what will I receive in the merger?

A:	You will be entitled to receive $37.00 in cash, without interest, for each share of our common stock that you own immediately prior to the effective time of the merger, unless you perfect your appraisal rights under Delaware law.

 

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Q:	If I hold warrants to purchase shares of NorthWestern common stock, how will my warrants be treated in the merger?

A:	Immediately prior to the effective time of the merger, each holder of an outstanding warrant to purchase shares of our common stock will be entitled to receive an amount in cash, without interest and less applicable withholding taxes, equal to the product obtained by multiplying:

•

the total number of shares of our common stock issuable upon the exercise in full of the warrant, by

•

the excess, if any, of $37.00 over the exercise price per share of common stock under the warrant.

Q:	Is the approval of the BBIL stockholders required to complete the merger?

A:	No. BBIL may complete the merger without obtaining the approval of its stockholders.

Q:	When and where is the annual meeting of our stockholders?

A:	The annual meeting of our stockholders will be held at the Sioux Falls Convention Center, 1201 N. West Avenue, Sioux Falls, South Dakota, on Wednesday, August 2, 2006, at 2:00 p.m. local time.

Q:	What vote of stockholders is required to adopt the merger agreement?

A:	For us to complete the merger, stockholders holding at least a majority of the shares of our common stock outstanding at the close of business on the record date and entitled to vote must vote “FOR” adoption of the merger agreement.

At the close of business on the record date, 35,493,837 shares of our common stock were issued and outstanding and entitled to vote.

Q:	What vote of stockholders is required for each other proposal at the annual meeting?

A:

A plurality of the votes cast by the shares of common stock present in person or represented by proxy at the annual meeting is required for the election of the directors. A properly executed proxy marked “WITHHOLD AUTHORITY” with respect to the election of one or more directors will not be voted with respect to the director or directors indicated, although it will be counted for purposes of determining whether there is a quorum. Stockholders do not have the right to cumulate their votes for directors.

The affirmative vote of the holders of a majority in voting power of the shares of our common stock present in person or represented by proxy at the annual meeting and entitled to vote thereon is required to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2006 and to approve any proposal to adjourn the annual meeting to solicit additional proxies.

Q:	Who can vote and attend the annual meeting?

A:

All stockholders of record as of the close of business on June 5, 2006, the record date for the annual meeting, are entitled to receive notice of and to attend and vote at the annual meeting, or any postponement or adjournment of the annual meeting. If you wish to attend the annual meeting and your shares are held in an account at a brokerage firm, bank or other nominee (i.e., in “street name”), you will need to bring a copy of your brokerage statement or other documentation reflecting your stock ownership as of the record date. “Street name” holders who wish to vote at the annual meeting will need to obtain a proxy authorizing them to vote at the annual meeting from the broker, bank or other nominee that holds their shares.

 

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Q:	How does our board of directors recommend that I vote?

A:	Our board of directors recommends that you vote:

•

“FOR” the proposal to adopt the merger agreement;

•

“FOR” the election of each of the nominees for director;

•

“FOR” ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2006; and

•

“FOR” any proposal to adjourn the annual meeting to solicit additional proxies if there are insufficient votes at the time of the annual meeting to adopt the merger agreement.

Q:	Why is our board of directors recommending that I vote “FOR” the proposal to adopt the merger agreement?

A:

After careful consideration, our board of directors unanimously approved the merger agreement and unanimously determined that the merger is advisable and fair to, and in the best interests of, our company and our stockholders. In reaching its decision to approve the merger agreement and to recommend the adoption of the merger agreement by our stockholders, the board of directors consulted with our management, as well as our legal and financial advisors, and considered the terms of the proposed merger agreement and the transactions contemplated by the merger agreement. Our board of directors also considered each of the items set forth on pages 37 through 39 under “The Merger—Our Reasons for the Merger.”

Q:	What will happen to the directors who are up for election if the merger agreement is adopted?

A:

If the merger agreement is adopted by stockholders and the merger is completed, the directors of BBI Glacier Corp., and not our directors, will become the directors of the surviving corporation in the merger. Our current directors, including those elected at the annual meeting, will serve only until the merger is completed.

Q:	How do I cast my vote?

A:	If you were a holder of record on June 5, 2006, you may vote in person at the annual meeting or by submitting a proxy for the annual meeting. You can submit your proxy by signing, dating and returning the enclosed proxy card in the accompanying pre-addressed, postage paid envelope.

If you properly transmit your proxy but do not indicate how you want to vote, your proxy will be voted “FOR” the adoption of the merger agreement, “FOR” the election of each of the nominees for director, “FOR” ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2006, and “FOR” any proposal to adjourn the annual meeting to solicit additional proxies.

Q:	How do I cast my vote if my NorthWestern shares are held in “street name” by my broker, bank or other nominee?

A:

If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, you must provide the recordholder of your shares with instructions on how to vote your shares in accordance with the voting directions provided by your broker, bank or other nominee. Please refer to the voting instruction card provided by your broker, bank or nominee to see if you may submit voting instructions using the Internet or telephone.

 

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Q:	How are votes counted?

A:

For the proposal relating to the adoption of the merger agreement, you may vote FOR, AGAINST or ABSTAIN. Because the vote is based on the number of shares outstanding, the failure to vote, either by not returning a properly executed proxy card or not voting in person at the annual meeting, or abstaining from voting, has the same effect as if you vote AGAINST the adoption of the merger agreement.

For the election of directors, you may vote FOR all of the nominees or you may WITHHOLD AUTHORITY for one or more of the nominees. Withheld votes will not count as votes cast for the nominee, but will count for the purpose of determining whether a quorum is present. As a result, if you withhold your vote, it has no effect on the outcome of the vote to elect directors.

For the proposal relating to ratification of our independent registered public accounting firm, you may vote FOR, AGAINST or ABSTAIN. The failure to vote, either by not returning a properly executed proxy card or not voting in person at the annual meeting, will have no effect on the outcome of the voting on the ratification proposal. However, abstentions will have the same effect as voting AGAINST ratification of our independent registered public accounting firm.

For the proposal relating to the adjournment of the annual meeting in order to solicit additional proxies, you may vote FOR, AGAINST or ABSTAIN. The failure to vote, either by not returning a properly executed proxy card or not voting in person at the annual meeting, will have no effect on the outcome of the voting on any proposal to adjourn the annual meeting in order to solicit additional proxies. However, abstentions will have the same effect as voting AGAINST any proposal to adjourn the annual meeting in order to solicit additional proxies.

If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the adoption of the merger agreement, “FOR” each of the nominees for director, “FOR” ratification of Deloitte & Touche LLP as our independent registered public accounting firm, “FOR” any proposal to adjourn the annual meeting to solicit additional proxies, and in accordance with the recommendations of our board of directors on any other matters properly brought before the annual meeting for a vote.

Q:	What is a “broker non-vote”?

A:

A “broker non-vote” generally occurs when a broker, bank or other nominee holding shares in “street name” on your behalf does not vote on a proposal because the broker, bank or other nominee has not received your voting instructions and lacks discretionary power to vote the shares. Generally, brokers, banks and other nominees have the discretion to vote for directors and the ratification of the appointment of our independent registered public accounting firm, unless you instruct otherwise. However, brokers, bank and other nominees cannot vote shares of our common stock that they hold beneficially either for or against the adoption of the merger agreement or for or against any proposal to adjourn the annual meeting to solicit additional proxies.

“Broker non-votes” will be treated as shares that are present and entitled to vote for the purpose of determining whether a quorum exists. However, for the purpose of determining the outcome of any matter as to which the broker, bank or other nominee has indicated on the proxy that it does not have discretionary authority to vote, those shares will be treated as not present or entitled to vote with respect to that matter, even though those shares are considered present for quorum purposes and may be entitled to vote on other matters.

As a result, “broker non-votes” will have the same effect as a vote against the adoption of the merger agreement. However, “broker non-votes” will be disregarded and will have no effect on the outcome of the voting on the election of directors, the ratification proposal and the adjournment proposal.

 

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Q:	How will the NorthWestern shares in the disputed claims reserve be counted?

A:

Pursuant to our plan of reorganization, we established a reserve of shares of our common stock, or the disputed claims reserve shares, from the shares allocated to holders of our trade vendor claims in excess of $20,000 and holders of Class 9 unsecured claims. The shares held in this reserve may be used to resolve various outstanding unsecured claims and unliquidated litigation claims, as these claims were not resolved or deemed allowed upon consummation of our plan of reorganization. We have surrendered control over the common stock provided to the shares reserve, which is administered by our transfer agent; therefore we recognized the issuance of these shares of our common stock upon emergence from bankruptcy.

As of the date of this proxy statement, there were 3,144,642 disputed claims reserve shares. Such shares will not be represented in person or by proxy at the annual meeting and therefore will not count as being present for the purpose of determining whether a quorum exists. In addition, the disputed claims reserve shares will not be voted on the proposal to adopt the merger agreement and, therefore, will have the same effect as a vote against the adoption of the merger agreement.

Furthermore, since such shares will not be present or voted at the annual meeting, the disputed claims reserve shares will have no effect on the outcome of the voting on the election of directors, the ratification proposal or the adjournment proposal.

Q:	Can I change my vote after I have delivered my proxy?

A:

Yes. If you are a recordholder of our common stock, you can change your vote at any time before your proxy is voted at the annual meeting by properly delivering a later-dated proxy either by mail or attending the annual meeting in person and voting. You also may revoke your proxy by delivering a notice of revocation to our corporate secretary prior to the vote at the annual meeting. If your shares are held in “street name,” you must contact your broker, bank or other nominee to revoke your proxy.

Q:	What should I do if I receive more than one set of voting materials?

A:

You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please vote each proxy and voting instruction card that you receive.

Q:	Am I entitled to appraisal rights?

A:

Yes. If you do not wish to accept the $37.00 per share cash consideration payable pursuant to the merger, you may seek, under Section 262 of the General Corporation Law of the State of Delaware, judicial appraisal of the fair value of your shares by the Delaware Court of Chancery. This value could be more than, less than or equal to the merger consideration of $37.00 per share. This right to appraisal is subject to a number of restrictions and technical requirements summarized under the section entitled “The Merger—Appraisal Rights” beginning on page 57.

We have included the full text of Section 262 of the General Corporation Law of the State of Delaware as Annex D to this proxy statement. We urge you to read all of Section 262 carefully if you wish to exercise your appraisal rights. If you fail to timely and properly comply with the requirements of Section 262, you will lose your appraisal rights under Delaware law.

 

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Q:	Will the merger be taxable to me?

A:

Yes, if you are a United States person. In that case, for United States federal income tax purposes, as a result of the merger, you generally will recognize gain or loss on each share of our common stock you hold measured by the difference, if any, between $37.00 and your adjusted tax basis in that share. However, subject to certain exceptions, a non-United States person will generally not be subject to United States federal income tax as a result of the merger.

You should read “The Merger—Material United States Federal Income Tax Consequences” beginning on page 60 for a more complete discussion of the United States federal income tax consequences of the merger. Tax matters can be complicated, and the tax consequences of the merger to you will depend on your particular tax situation. We urge you to consult your tax advisor on the tax consequences of the merger to you.

Q:	If I am a holder of certificated shares, should I send in my share certificates now?

A:

No. Shortly after the merger is completed, you will receive a letter of transmittal with instructions informing you how to send your stock certificates to the paying agent in order to receive the merger consideration. You should use the letter of transmittal to exchange your stock certificates for the merger consideration to which you are entitled as a result of the merger. If your shares are held in “street name” by your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your “street name” shares and receive cash for those shares. DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY.

Q:	When do you expect the merger to be completed?

A:

We are working to complete the merger as quickly as possible. We currently expect to complete the merger in the first or second quarter of 2007. We cannot, however, predict the exact timing of the merger because the merger is subject to the receipt of regulatory approvals and other closing conditions. While we believe that we will obtain all required regulatory approvals, we cannot assure you that these regulatory approvals will be obtained and, even if they are ultimately obtained, they might not be obtained for a substantial period of time following the adoption of the merger agreement at the annual meeting.

In addition, the consummation of the merger is conditioned on the receipt of all regulatory approvals required to consummate the merger on terms that would not reasonably be likely to have a material adverse effect on us, the consummation of the merger or the financial condition of BBIL. See “The Merger Agreement—Conditions to the Merger” and “The Merger Agreement—Effective Time.”

Q:	Who will bear the cost of this solicitation?

A:	We will pay the cost of this solicitation, which will be made primarily by mail. Proxies also may be solicited in person, by telephone, facsimile or similar means, by our directors, officers or employees without additional compensation.

In addition, we have retained Innisfree M&A Incorporated to assist us with the solicitation of proxies and to verify certain records related to the solicitations. We will pay Innisfree for these services a fee of $50,000 for the first two months and $20,000 per month thereafter, if necessary, plus their reasonable expenses.

We will, on request, reimburse stockholders who are brokers, banks or other nominees for their reasonable expenses in sending proxy materials and annual reports to the beneficial owners of the shares they hold of record.

 

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Q:	Who can help answer my questions?

A:	If you have any questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card, you should contact:

NorthWestern Corporation
Dan Rausch Director – Investor Relations (605) 978-2902	or	Tammy Lydic Assistant Corporate Secretary (605) 978-2913
Innisfree M&A Incorporated
Stockholders: (888) 750-5834 (toll-free)		Banks and Brokers: (212) 750-5833 (call collect)

 

 

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 SUMMARY TERM SHEET ABOUT THE MERGER

This summary highlights selected information from this proxy statement and may not contain all the information about the merger that is important to you. We have included page references in parentheses to direct you to more complete descriptions of the topics presented in this summary term sheet. In addition, to understand the merger fully and for a more complete description of the legal terms of the merger, you should read carefully this proxy statement in its entirety, including the annexes, and the other documents to which we have referred you.

The Companies (Page 21)

NorthWestern Corporation

NorthWestern Corporation

d/b/a NorthWestern Energy

125 S. Dakota Avenue

Sioux Falls, SD 57104

Telephone: (605) 978-2908

We are a Delaware corporation and one of the largest providers of electricity and natural gas in the Upper Midwest and Northwest, serving approximately 628,500 customers in Montana, South Dakota and Nebraska under the trade name “NorthWestern Energy.” We have generated and distributed electricity in South Dakota and distributed natural gas in South Dakota and Nebraska since 1923 and have distributed electricity and natural gas in Montana since 2002.

Babcock & Brown Infrastructure Limited

Babcock & Brown Infrastructure Limited

The Chifley Tower, Level 39

2 Chifley Square

Sydney NSW 2000

Australia

Telephone: 61-2-9229-1800

BBIL, along with Babcock & Brown Infrastructure Trust, or BBIT, form Babcock & Brown Infrastructure, or BBI. BBI is a utility infrastructure company based in Sydney, Australia, listed on the Australian Stock Exchange (ASX: BBI) and admitted to the ASX 200 Index. BBI has a current enterprise value of approximately US$4.9 billion and equity value of approximately US$1.7 billion. Each share in BBIL is stapled to a unit of BBIT. Babcock & Brown Investor Services Limited, a subsidiary of Babcock & Brown Limited (ASX: BNB), or Babcock & Brown, is the Trustee for BBIT. BBI is rated investment grade by Moody’s Investors Service.

BBI was formerly known as Prime Infrastructure. Its principal activity is owning and managing utility and infrastructure businesses worldwide. BBI owns companies in electricity transmission and distribution, gas transmission and distribution, and transport infrastructure, and has ownership interests in thermal and renewable power generation.

BBI US Holdings Pty Ltd. is a direct wholly owned Australian subsidiary of BBIL. BBI US Holdings II Corp., a Delaware corporation, is a wholly owned direct subsidiary of BBI US Holdings Pty Ltd. BBI Glacier Corp., a Delaware corporation, is a wholly owned direct subsidiary of BBI US Holdings II Corp. None of BBI US Holdings Pty Ltd., BBI US Holdings II Corp. or BBI Glacier Corp. has conducted any business operations other than incidental to its formation and in connection with the transactions contemplated by the merger agreement. Each was formed solely for the purpose of engaging in the merger and the other transactions contemplated by the merger agreement.

 

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Structure of Transaction (Page 23)

The proposed transaction is a merger of BBI Glacier Corp. with and into NorthWestern with NorthWestern surviving the merger as a wholly owned indirect subsidiary of BBIL. The following will occur in connection with the merger:

•

Each share of our common stock issued and outstanding immediately prior to the effective time of the merger (other than shares held directly or indirectly by us or BBIL or any of its subsidiaries, shares held by dissenting stockholders who exercise and perfect their appraisal rights under Delaware law, unvested restricted shares and shares held in the disputed claims reserve) will automatically be cancelled and converted into the right to receive $37.00 in cash, without interest and less any required withholding taxes.

•

Each unvested share of our restricted common stock that is issued and outstanding immediately prior to the effective time of the merger shall vest in full, become free of restrictions and shall be converted into the right to receive $37.00, without interest and less any required withholding taxes.

•

Each share of our common stock that is owned by us as treasury stock, by any of our subsidiaries, or by BBIL or any of its subsidiaries, immediately prior to the effective time of the merger will automatically be cancelled and will cease to exist. No consideration will be delivered in exchange for those shares.

•

Each share of our common stock issued and outstanding and held in the disputed claims reserve immediately prior to the effective time of the merger will automatically be cancelled and converted into the right to receive $37.00 in cash without interest and less any required withholding taxes.

•

Upon the surrender to the paying agent of an original copy of an outstanding warrant to purchase shares of our common stock, the paying agent will pay to the holder of such warrant an amount in cash, without interest and less any required withholding taxes, equal to the product obtained by multiplying:

•

the total number of shares of our common stock issuable upon the exercise in full of the warrant, by

•

the excess, if any, of $37.00 over the exercise price per share of common stock under such warrant.

•

Each deferred stock unit (representing rights based on a share of our common stock) which is outstanding under our 2005 Deferred Compensation Plan for Nonemployee Directors immediately prior to the effective time of the merger will automatically be converted into the right to receive $37.00 for each share that is subject to the deferred stock unit, without interest and less any required withholding taxes, from us or the surviving corporation, as applicable. The holder of such deferred stock unit will be entitled to receive such amount at the time previously selected by such holder pursuant to the terms of any deferral election made with respect to such deferred stock unit, subject to the terms and conditions set forth in our 2005 Deferred Compensation Plan for Nonemployee Directors and compliance with applicable tax law and regulations.

•

Each share of BBI Glacier Corp.’s common stock, par value $.01 per share, all of which are held, indirectly, by BBIL, will be converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $.01 per share, of the surviving corporation and such shares will be the only outstanding shares of capital stock of the surviving corporation.

•

Our stockholders will no longer have any interest in, and will no longer be stockholders of, our company and will not participate in any of our future earnings or growth.

•

Our common stock will no longer be listed on the Nasdaq National Market, and price quotations with respect to our common stock in the public market will no longer be available.

•

The registration of our common stock under the Exchange Act will be terminated.

 

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The following is a chart depicting the post-merger corporate structure:

	Babcock & Brown Infrastructure
	Babcock & Brown Infrastructure Limited							Babcock & Brown Infrastructure Trust
		BBI US Holdings Pty Ltd.
		BBI US Holdings II Corp.
		NorthWestern Corporation

 

Our Stock Price

Shares of our common stock are traded on the Nasdaq National Market under the symbol “NWEC.” On April 25, 2006, the last trading day before the merger was announced, the closing price per share of our common stock was $32.09. On June 27, 2006, the last trading day before the date of this proxy statement, the closing price per share was $33.99.

Recommendation of Our Board of Directors; Our Reasons for the Merger (Page 37)

Our board of directors approved the merger agreement and determined that the merger is advisable and is fair to, and in the best interests of, our company and our stockholders. Accordingly, our board of directors recommends that our stockholders vote “FOR” adoption of the merger agreement.

In making the determination to recommend the merger agreement be adopted, our board of directors considered, among other factors:

•

the potential value that might result from other alternatives available to us, including the alternative of remaining a stand-alone, independent company, as well as the risks and uncertainties associated with those alternatives;

•

the evaluation we conducted with the assistance of our financial advisor, our legal advisor and our regulatory advisor, which explored a possible sale of our company, sale of certain assets of our company and potential alternatives to a sale, including a leveraged recapitalization and strategic acquisitions, as well as continuing to operate as a stand-alone company;

•

the current and historical market prices of our common stock, including the market price of the our common stock relative to those of other industry participants and general market indices;

•

the opportunity for our stockholders to realize a substantial value based on the receipt of $37.00 in cash per share of our common stock, representing a premium over the market price at which our common stock traded prior to the announcement of the merger; and

•

the additional factors described in detail under “The Merger—Recommendation of Our Board of Directors; Our Reasons for the Merger.”

 

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Due to the variety of factors considered, our board of directors did not assign relative weight to these factors or determine that any factor was of particular importance. Our board of directors reached its conclusion based upon the totality of the information presented and considered during its evaluation of the merger.

Certain Effects of the Merger (Page 51)

The merger will terminate all equity interests in us held by our current stockholders, and BBIL will be the sole owner of us and our business. Upon completion of the merger, we will remove our common stock from quotation on the Nasdaq National Market, and our common stock will no longer be publicly traded.

Background to the Merger (Page 25);

Recommendation of Our Board of Directors; Our Reasons for the Merger (Page 37)

For a description of the events leading to the approval of the merger agreement and the merger by our board of directors, you should refer to “The Merger—Background of the Merger” and “The Merger—Recommendation of Our Board of Directors; Our Reasons for the Merger.”

Payment for Shares (Page 68)

As soon as practicable after the effective time of the merger, which is expected in 2007, a paying agent appointed by BBIL will mail a letter of transmittal and instructions to all of our stockholders. The letter of transmittal and instructions will tell you how to surrender your NorthWestern common stock certificates in exchange for the merger consideration, without interest. You should not return with the enclosed proxy card any stock certificates you hold, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

Opinion of Credit Suisse Securities (USA) LLC (Page 39 and Annex B)

Credit Suisse Securities (USA) LLC, or Credit Suisse, our financial advisor, has rendered its written opinion, dated April 25, 2006, to our board of directors to the effect that, as of that date, the consideration to be received by the holders of our common stock in the merger was fair, from a financial point of view, to the holders of our common stock, subject to the assumptions, qualifications, limitations and other matters described in its opinion. Credit Suisse’s opinion does not address the merits of the merger as compared to alternative transactions or strategies that may be available to us nor does it address our underlying decision to proceed with the merger. Credit Suisse’s opinion also does not constitute a recommendation to any of our stockholders as to how such stockholder should vote or act on any matter relating to the proposed merger.

The full text of Credit Suisse’s written opinion, dated April 25, 2006, to our board of directors, which sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered is included as Annex B to this proxy statement. The summary of Credit Suisse’s opinion in this proxy statement is qualified in its entirety by reference to the full text of the opinion, which is incorporated by reference. Holders of our common stock are encouraged to carefully read the opinion in its entirety.

Opinion of The Blackstone Group L.P. (Page 45 and Annex C)

On April 25, 2006, The Blackstone Group L.P., or Blackstone, our other financial advisor, delivered its oral opinion to our board of directors and subsequently confirmed in writing, that, as of that date, and based upon and subject to the considerations described in their written opinion, the cash consideration of $37.00 per share to be paid under the merger agreement is fair, from a financial point of view, to the holders of our common stock.

 

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The full text of the written opinion of Blackstone is included as Annex C to this proxy statement. We encourage you to read this opinion carefully in its entirety for a description of the procedures followed, assumptions made, matters considered and limitations on the review undertaken. The opinion was provided to our board of directors and does not constitute a recommendation by Blackstone to any stockholder as to any matter relating to the merger.

Interests of Our Directors and Executive Officers in the Merger (Page 51)

Members of our board of directors and our executive officers may have interests in the merger that differ from, or are in addition to, those of other stockholders. For example:

•

as of the record date, our executive officers and directors held 50,305 shares of our common stock;

•

as of the record date, our directors held 37,966 deferred stock units (each representing rights based on a share of our common stock). As a result of the merger, each deferred stock unit that is outstanding under our 2005 Deferred Compensation Plan for Nonemployee Directors immediately prior to the effective time of the merger will automatically be converted into the right to receive $37.00, without interest and less any required withholding taxes, payable as and when provided under such plan;

•

as of the record date, our executive officers held 35,164 unvested shares of restricted stock under our 2004 Special Recognition Grant Restricted Stock Plan. Approximately 250,000 additional shares remain available for grants to our executive officers and directors under our 2005 Long-Term Incentive Plan. All unvested shares of restricted stock will vest immediately upon the effective time of the merger and will be cashed out in the merger for $37.00 per share;

•

our executive officers may be entitled to change of control severance benefits under our 2006 Officer Severance Plan if their employment is terminated without cause or if such officer resigns for good reason within 18 months following the effective time of the merger. Such benefits would include 2 times annual compensation for our Chief Executive Officer and Chief Financial Officer and 1.5 times annual compensation for all other officers, plus current year pro-rata annual short-term incentive bonus based on actual time employed during the year, reimbursement of COBRA premiums for 18 months following termination, and payment of outplacement services for 12 months up to $12,000;

•

our current and former directors, and officers will continue to be indemnified after the completion of the merger and will have the benefit of liability insurance for at least six years and one month after completion of the merger; and

•

following the merger, it is expected that our current executive officers will continue as executive officers of the surviving corporation. The service of our directors will end on the completion of the merger.

The Merger Agreement (Page 66)

Conditions to the Completion of the Merger

We are working to complete the merger as soon as possible. Although we expect to complete the merger in the first or second quarter of 2007, the merger is subject to receipt of stockholder and regulatory approvals and satisfaction of other conditions, including the conditions described immediately below. We cannot predict the exact time of the merger’s completion.

The completion of the merger depends on a number of conditions being satisfied, including but not limited to:

•

the adoption of the merger agreement by our stockholders;

 

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•

the absence of any material statute, rule, regulation, order, decree or injunction issued by a court or other governmental entity that has the effect of making the merger illegal or that otherwise prevents or prohibits the consummation of the merger;

•

the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or HSR Act;

•

the receipt of all regulatory approvals required to consummate the merger on terms that would not reasonably be likely to have a material adverse effect on us, the consummation of the merger or the financial condition of BBIL;

•

the continued accuracy of the representations and warranties of each party to the merger agreement; and

•

the performance in all material respects by the parties to the merger agreement of their respective covenants contained in the merger agreement.

Where legally permissible, a party may waive a condition to its obligation to complete the merger even though that condition has not been satisfied.

No Solicitation Covenant

The merger agreement restricts our ability to, among other things, solicit or engage in discussions or negotiations with a third party regarding specified transactions involving us. Notwithstanding these restrictions, until our stockholders adopt the merger agreement, under certain circumstances, our board of directors may respond to an unsolicited written bona fide proposal for an alternative acquisition, and the board may terminate the merger agreement and enter into an acquisition agreement with respect to a superior proposal so long as we comply with certain terms of the merger agreement, including paying a termination fee of $50 million to BBIL.

Termination of the Merger Agreement

The parties to the merger agreement can mutually or unilaterally agree to terminate the merger agreement in certain circumstances. Under certain circumstances, we may be required to pay BBIL a termination fee of $50 million in immediately available funds, and BBIL may be required to pay us a business interruption fee of $70 million in immediately available funds. The business interruption fee is secured by a letter of credit in our favor issued by the New York City branch of Australia and New Zealand Banking Group Limited.

Material United States Federal Income Tax Consequences (Page 60)

The merger will be a taxable transaction to you if you are a U.S. person. For U.S. federal income tax purposes, your receipt of cash (whether as merger consideration or pursuant to the proper exercise of appraisal rights) in exchange for your shares of our common stock generally will cause you to recognize a gain or loss measured by the difference, if any, between the cash you receive in the merger and your adjusted tax basis in your shares of our common stock. Under U.S. federal income tax law, you may be subject to information reporting on cash received in the merger unless an exemption applies. Backup withholding may also apply (the rate currently scheduled to be in effect for 2007 is 28%) with respect to the amount of cash received in the merger, unless you provide proof of an applicable exemption or a correct taxpayer identification number and otherwise comply with the applicable requirements of the backup withholding rules. You should read “The Merger—Material United States Federal Income Tax Consequences” beginning on page 60 for a more complete discussion of the federal income tax consequences of the merger. Tax matters can be complicated, and the tax consequences of the merger to you will depend on your particular tax situation. We urge you to consult your tax advisor on the tax consequences of the merger to you.

 

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Regulatory Matters (Page 55)

To complete the merger, we and BBIL must obtain approvals or consents from, or make filings with the following U.S. federal, state and local regulatory authorities:

•

the Federal Energy Regulatory Commission, or FERC;

•

the Committee on Foreign Investment in the United States, or CFIUS;

•

the Federal Communications Commission, or FCC;

•

the Montana Public Service Commission, or MPSC;

•

the Nebraska Public Service Commission, or NPSC; and

•

the South Dakota Public Utilities Commission, or SDPUC.

In addition, prior to completing the merger, the applicable waiting period under the U.S. federal antitrust law, the HSR Act, must expire or terminate.

As of the date of this proxy statement, we and BBIL were in the process of obtaining the regulatory approvals required by applicable law or regulations.

Appraisal Rights (Page 57)

Under Delaware law, stockholders who do not wish to accept the $37.00 per share cash consideration payable pursuant to the merger may seek, under Section 262 of the General Corporation Law of the State of Delaware, judicial appraisal of the fair value of their shares by the Delaware Court of Chancery. This value could be more than, less than or equal to the merger consideration of $37.00 per share. This right to appraisal is subject to a number of restrictions and technical requirements. In order to properly demand appraisal, among other things:

•

you must not vote in favor of the proposal to adopt the merger agreement;

•

you must make a written demand on us for appraisal in compliance with the General Corporation Law of the State of Delaware before the vote on the proposal to adopt the merger agreement occurs at the annual meeting; and

•

you must hold your shares of record continuously from the time of making a written demand for appraisal through the effective time of the merger. A stockholder who is the recordholder of shares of our common stock on the date the written demand for appraisal is made, but who thereafter transfers those shares prior to the effective time of the merger, will lose any right to appraisal in respect of those shares.

Merely voting against the merger agreement will not preserve your right to appraisal under Delaware law. Also, because a submitted proxy not marked “AGAINST” or “ABSTAIN” will be voted “FOR” the proposal to adopt the merger agreement, the submission of a proxy not marked “AGAINST” or “ABSTAIN” will result in the waiver of appraisal rights. If you are not the recordholder of your shares (e.g. you hold shares in the name of a broker, bank or other nominee) and you wish to have appraisal rights, you must instruct your nominee or other recordholder to take the steps necessary to enable you to demand appraisal for your shares. If you or your broker, bank or other nominee fails to follow all of the steps required by Section 262 of the General Corporation Law of the State of Delaware, you will lose your right of appraisal. See “The Merger—Appraisal Rights” beginning on page 57 for a description of the procedures that you must follow in order to exercise your appraisal rights.

Annex D to this proxy statement contains the full text of Section 262 of the General Corporation Law of the State of Delaware, which relates to your right of appraisal. We encourage you to read these provisions carefully and in their entirety.

 

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Financing (Page 63)

The total amount of funds necessary to complete the merger is US$2.228 billion, of which US$736 million represents existing NorthWestern debt, and the remaining approximately US$1.492 billion will be funded through a combination of equity contributions by BBIL and debt financing.

Litigation Related to the Merger (Page 65)

On November 29, 2005, the City of Livonia Employees’ Retirement System, or City of Livonia, filed a complaint against us and our board of directors in the U.S. District Court for the District of South Dakota for breach of fiduciary duties as a result of our alleged failure to negotiate with Montana Public Power, Inc. and Black Hills Corporation. City of Livonia subsequently filed a motion for a temporary restraining order seeking to require our board of directors to redeem our stockholder rights plan. The trial on City of Livonia’s lawsuit has been continued four times and is now set for August 8, 2006. On June 2, 2006, we, our board of directors and City of Livonia signed a Memorandum of Understanding agreeing that City of Livonia would dismiss all of its claims and release us and our board of directors under certain conditions.

On February 13, 2006, Harbert Distressed Investment Master Fund, Ltd., now known as Harbinger Capital Partners Master Fund I, Ltd. filed a complaint in the Court of Chancery of the State of Delaware. Harbinger sought in its action, among other things, a declaration that it would not trigger the stockholder rights plan if (i) it submitted its nonbinding referendum to all stockholders and (ii) solicited other stockholders for candidates for the board of directors. Thereafter, the Delaware court denied a motion by Harbinger for an expedited hearing, finding that the issues Harbinger raised were before the South Dakota federal court and should be resolved there. The Delaware court also advised that if Harbinger’s issues were not resolved in South Dakota, Harbinger could renew its motion after the South Dakota court ruled on the request to require the board of directors to redeem the stockholders rights plan. Harbinger dismissed its Delaware suit, without prejudice, on May 15, 2006.

On March 7, 2006, Harbinger intervened in the City of Livonia lawsuit for the limited purpose of briefing the two issues it raised in its Delaware action. Harbinger ultimately dismissed its South Dakota intervenor complaint, without prejudice, on May 12, 2006.

Irrevocable Letter of Credit (Page 80)

In connection with the execution and delivery of the merger agreement, BBIL delivered to us an irrevocable letter of credit issued by the New York City branch of Australia and New Zealand Banking Group Limited in our favor in an amount equal to US$70 million with a termination date of April 25, 2007. Payment of the business interruption fee by BBIL to us will be secured by the letter of credit.

BBIL has also agreed to deliver to us, no later than 5:00 p.m. New York City time on January 25, 2007, an irrevocable substitute letter of credit issued by Australia and New Zealand Banking Group Limited, or another financial institution that is reasonably acceptable to us. The substitute letter of credit will have a termination date of May 25, 2008. If BBIL delivers the substitute letter of credit to us prior to January 25, 2007, we will promptly return the original letter of credit to BBIL.

Amendment to NorthWestern’s Stockholder Rights Plan (Page 84)

On April 25, 2006, immediately prior to the execution of the merger agreement, we and LaSalle Bank National Association, or LaSalle Bank, as rights agent, entered into an amendment to the rights plan which provides that neither the execution of the merger agreement nor the consummation of the merger will trigger the provisions of the rights plan as to BBIL.

 

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 FORWARD-LOOKING INFORMATION

This proxy statement and the documents to which we refer you in this proxy statement contain forward-looking statements based on estimates and assumptions. Forward-looking statements include information concerning possible or assumed future results of operations of the Company, the expected completion and timing of the merger and other information relating to the merger. There are forward-looking statements throughout this proxy statement, including, among others, under the headings “Summary,” “Recommendation of Our Board of Directors; Our Reasons for the Merger,” “Opinion of Credit Suisse Securities (USA) LLC,” “Opinion of The Blackstone Group L.P.,” and in statements containing the words “believes,” “plans,” “expects,” “anticipates,” “intends,” “estimates” or other similar expressions. You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on our business or operations. These forward-looking statements speak only as of the date on which the statements were made, and we undertake no obligation to publicly update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future events or otherwise. In addition to other factors and matters contained or incorporated in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

•

the satisfaction of the conditions to consummate the merger, including the receipt of the required stockholder and regulatory approvals;

•

the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement;

•

the failure of the merger to close for any other reason;

•

our ability to avoid or mitigate adverse rulings or judgments against us in our pending litigation arising from our bankruptcy proceeding, litigation related to our acquisition of the electric and natural gas transmission and distribution business formerly held by The Montana Power Company, and the formal investigation being conducted by the SEC;

•

unscheduled generation outages, maintenance or repairs which may reduce revenues and increase cost of sales or may require additional capital expenditures or other increased operating costs;

•

unanticipated changes in availability of trade credit, usage, commodity prices, fuel supply costs or availability due to higher demand, shortages, weather conditions, transportation problems or other developments, may reduce revenues or may increase operating costs, each of which would adversely affect our liquidity;

•

adverse changes in general economic and competitive conditions in our service territories; and

•

potential additional adverse federal, state, or local legislation or regulation or adverse determinations by regulators could have a material adverse effect on our liquidity, results of operations and financial condition.

 

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 THE NORTHWESTERN CORPORATION ANNUAL MEETING

We are furnishing this proxy statement to our stockholders as part of the solicitation of proxies by our board of directors for use at the annual meeting.

 Date, Time and Place

We will hold the annual meeting on Wednesday, August 2, 2006, beginning at 2:00 p.m. local time at the Sioux Falls Convention Center, 1201 N. West Avenue, Sioux Falls, South Dakota.

 Purpose of the Annual Meeting

At the annual meeting, we are asking holders of record of our common stock to consider and vote on the following proposals:

•

The adoption of the merger agreement (see “Proposal 1—Adoption of the Merger Agreement” beginning on page 21);

•

The election of seven (7) nominees to serve on our board of directors (see “Proposal 2—Election of Directors” beginning on page 86);

•

The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2006 (see “Proposal 3—Ratification of Independent Registered Public Accounting Firm” beginning on page 102”);

•

Any proposal to adjourn the annual meeting to solicit additional proxies if there are insufficient votes at the time of the annual meeting to adopt the merger agreement (see “Proposal 4—Adjournment of the Annual Meeting” beginning on page 103”); and

•

The transaction of any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting.

Our stockholders must adopt the merger agreement for the merger to occur. If the stockholders fail to adopt the merger agreement, the merger will not occur. A copy of the merger agreement is included with this proxy statement as Annex A. This proxy statement and the enclosed form of proxy are first being mailed to our stockholders on or about June 28, 2006.

We are also providing the following documents with this proxy statement:

•

Our Annual Report and Form 10-K for the fiscal year ended December 31, 2005; and

•

Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.

 Recommendation of Our Board of Directors

Our board of directors recommends that you vote “FOR” the proposal to adopt the merger agreement, “FOR” each of the nominees for director, “FOR” ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm, and “FOR” any proposal to adjourn the annual meeting to solicit additional proxies.

 Record Date; Stockholders Entitled to Vote; Quorum

Only holders of our common stock at the close of business on June 5, 2006, the record date, are entitled to notice of and to attend and vote at the annual meeting. At the close of business on the record date, 35,493,837 shares of our common stock were issued and outstanding and entitled to vote. On the record date, shares of our common stock were held by 512 holders of record. Holders of our common stock on the record date are entitled to one vote per share at the annual meeting on each proposal. A list of our stockholders will

 

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be available for review for any purpose germane to the annual meeting at our executive offices and principal place of business during regular business hours for a period of 10 days before the annual meeting.

A quorum is necessary to hold a valid annual meeting. A quorum will be present at the annual meeting if the holders of a majority of the shares of our common stock outstanding and entitled to vote on the record date are present in person or represented by proxy. If a quorum is not present at the annual meeting, we expect that the annual meeting will be adjourned to solicit additional proxies. Abstentions and “broker non-votes” count as present for establishing a quorum for the transaction of all business. Generally, “broker non-votes” occur when shares held by a broker, bank or other nominee for a beneficial owner are not voted with respect to a particular proposal because (1) the broker, bank or other nominee has not received voting instructions from the beneficial owner, and (2) the broker, bank or other nominee lacks discretionary voting power to vote such shares.

Generally, brokers, banks and other nominees have the discretion to vote for directors and the ratification of the appointment of our independent registered public accounting firm, unless you instruct otherwise. However, brokers, banks and other nominees cannot vote shares of our common stock that they hold beneficially either for or against the adoption of the merger agreement or for or against any proposal to adjourn the annual meeting to solicit additional proxies.

Pursuant to our plan of reorganization, we established the disputed claims reserve shares, from the shares allocated to holders of our trade vendor claims in excess of $20,000 and holders of Class 9 unsecured claims. The shares held in this reserve may be used to resolve various outstanding unsecured claims and unliquidated litigation claims, as these claims were not resolved or deemed allowed upon consummation of our plan of reorganization. We have surrendered control over the common stock provided, and the shares reserve, which is administered by our transfer agent; therefore we recognized the issuance of these shares of our common stock upon emergence from bankruptcy.

As of the date of this proxy statement, there were 3,144,642 disputed claims reserve shares. Such shares will not be represented in person or by proxy at the annual meeting and therefore will not count as being present for the purpose of determining whether a quorum exists. In addition, the disputed claims reserve shares will not be voted on the proposal to adopt the merger agreement and, therefore, will have the same effect as a vote against the adoption of the merger agreement.

Furthermore, since such shares will not be present or voted at the annual meeting, the disputed claims reserve shares will have no effect on the outcome of the voting on the election of directors, the ratification proposal or the adjournment proposal.

 Vote Required

Adoption of Merger Agreement. The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the shares of our common stock outstanding and entitled to vote at the annual meeting as of the record date. Failure to vote your shares, “broker non-votes” and the disputed claims reserve shares will have the same effect as voting against the adoption of the merger agreement.

Election of Directors. A plurality of the votes cast by the shares of common stock present in person or represented by proxy at the annual meeting is required for the election of the directors. A properly executed proxy marked “WITHHOLD AUTHORITY” with respect to the election of one or more directors will not be voted with respect to the director or directors indicated, although it will be counted for purposes of determining whether there is a quorum. Stockholders do not have the right to cumulate their votes for directors.

Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2006. The affirmative vote of the holders of a majority in voting power of the shares of our common stock which are present in person or represented by proxy at the annual meeting and entitled to vote thereon is required to ratify the appointment of Deloitte & Touche LLP as our independent registered

 

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public accounting firm for 2006. Because abstentions are counted as shares entitled to vote at the annual meeting, abstentions will have the effect of votes against such proposal. However, “broker non-votes” and the disputed claims reserve shares will have no effect on the outcome of such proposal.

Adjournment of Annual Meeting. The affirmative vote of the holders of a majority in voting power of the shares of our common stock which are present in person or represented by proxy at the annual meeting and entitled to vote thereon is required to approve any proposal to adjourn the annual meeting to solicit additional proxies. Because abstentions are counted as shares entitled to vote at the annual meeting, abstentions will have the effect of votes against such proposal. However, “broker non-votes” and the disputed claims reserve shares will have no effect on the outcome of such proposal.

 Voting by Our Directors and Executive Officers

As of June 5, 2006, the record date for our annual meeting, our directors and executive officers held and are entitled to vote, in the aggregate, 50,305 shares of our common stock, representing less than 1% of the outstanding shares of our common stock. The directors and executive officers have informed us that they intend to vote all of their shares of our common stock “FOR” the adoption of the merger agreement, “FOR” the election of the nominated directors, “FOR” the ratification of Deloitte & Touche LLP as our independent registered public accounting firm and “FOR” the adjournment of the annual meeting to solicit additional proxies.

 Voting Procedures

Voting by Proxy or in Person at the Annual Meeting. Holders of record can ensure that their shares are voted at the annual meeting by completing, signing, dating and delivering the enclosed proxy card in the enclosed postage-paid envelope. Submitting by this method will not affect your right to attend the annual meeting and to vote in person. If you plan to attend the annual meeting and wish to vote in person, you will be given a ballot at the annual meeting. Please note, however, that if your shares are held in “street name” by a broker, bank or other nominee and you wish to vote at the annual meeting, you must bring to the annual meeting a proxy from the recordholder of the shares authorizing you to vote at the annual meeting.

Electronic Voting. Many stockholders who hold their shares through a broker, bank or other nominee will have the option to submit their proxy cards or voting instruction cards electronically by using the Internet or telephone. If you hold your shares through a broker, bank or other nominee, you should check your voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available. Our holders of record will not have the option to submit their proxy cards electronically.

Read and follow the instructions on your proxy or voting instruction card carefully.

 

 Adjournments; Other Business

Adjournments may be made for the purpose of soliciting additional proxies. An adjournment requires the affirmative vote of the holders of a majority in voting power of the shares of our common stock which are present in person or represented by proxy at the annual meeting and entitled to vote thereon, whether or not a quorum exists, without further notice other than by an announcement made at the annual meeting of the date, time and place at which the meeting will be reconvened. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. We do not currently intend to seek an adjournment of the annual meeting, unless at the time of the annual meeting there are insufficient votes to adopt the merger agreement.

 

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We do not expect that any matter other than Proposals 1-4 will be brought before the annual meeting. If, however, other matters are properly presented at the annual meeting or any adjournment thereof, the persons named as proxies will vote in accordance with their best judgment with respect to those matters.

 Revocation of Proxies

Submitting a proxy on the enclosed form does not preclude a stockholder from voting in person at the annual meeting. A stockholder of record may revoke a proxy at any time before it is voted by filing with our corporate secretary a duly executed revocation of proxy, by properly submitting a proxy by mail with a later date or by appearing at the annual meeting and voting in person. A stockholder of record may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder’s previous proxy. Attendance at the annual meeting without voting will not itself revoke a proxy. If your shares are held in “street name,” you must contact your broker, bank or other nominee to revoke your proxy.

 Solicitation of Proxies

We are soliciting proxies for the annual meeting from our stockholders. We will bear the entire cost of soliciting proxies from our stockholders. In addition to the solicitation of proxies by mail, we will request that banks, brokers and other nominees send proxies and proxy materials to the beneficial owners of our common stock held by them and secure their voting instructions if necessary. We will reimburse those banks, brokers and other nominees for their reasonable expenses in so doing. We may use several of our regular employees, who will not be specially compensated, to solicit proxies from our stockholders, either personally or by telephone, Internet, telegram, facsimile or special delivery letter.

In addition, we have retained Innisfree M&A Incorporated to assist us with the solicitation of proxies and to verify certain records related to the solicitations. We will pay Innisfree for these services a fee of $50,000 for the first two months and $20,000 per month thereafter, if necessary, plus their reasonable expenses. We have agreed to indemnify Innisfree against certain liabilities resulting from claims involving Innisfree that directly arise out of Innisfree’s engagement, except for any liability resulting from Innisfree’s negligence or misconduct.

 Appraisal Rights

Under the General Corporation Law of the State of Delaware, holders of our common stock who do not vote in favor of adopting the merger agreement will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the merger is completed, but only if they submit a written demand for an appraisal prior to the vote on the adoption of the merger agreement and they comply with the provisions of Section 262 of the General Corporation Law of the State of Delaware set forth in full as Annex D to this proxy statement.

 Assistance

If you need assistance in completing your proxy card or have questions regarding our annual meeting, please contact:

NorthWestern Corporation
Dan Rausch Director – Investor Relations (605) 978-2902	or	Tammy Lydic Assistant Corporate Secretary (605) 978-2913
Innisfree M&A Incorporated
Stockholders: (888) 750-5834 (toll-free)		Banks and Brokers: (212) 750-5833 (call collect)

 

 

 

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PROPOSAL 1

ADOPTION OF THE MERGER AGREEMENT

 THE MERGER

The following is a description of the material aspects of the merger. While we believe that the following description covers the material terms of the merger, the description may not contain all of the information that is important to you. We encourage you to read carefully this entire document, including the merger agreement included with this proxy statement as Annex A, for a more complete understanding of the merger. The following description is subject to, and is qualified in its entirety by reference to, the merger agreement.

 The Companies

NorthWestern Corporation

We are a Delaware corporation and one of the largest providers of electricity and natural gas in the Upper Midwest and Northwest serving more than 628,500 customers in Montana, South Dakota and Nebraska under the trade name “NorthWestern Energy.” Classified as a mid-sized utility by most industry standards, our geographical service territory size is one of the largest in the country.

We have generated and distributed electricity in South Dakota and distributed natural gas in South Dakota and Nebraska since 1923. On February 15, 2002, we acquired electricity and natural gas transmission and distribution assets and natural gas storage assets of the former Montana Power Company, which have been in operation since 1912.

We operate our business in five segments: regulated electric operations, regulated natural gas operations, unregulated electric operations, unregulated natural gas operations and other. Our electric operations consist of electric transmission and distribution networks; our natural gas operations consist of natural gas supply and interstate pipeline transmission services and distribution services; and other primarily consists of other miscellaneous service activities that are not included in the other identified segments.

Our utility operations are regulated primarily by the MPSC, the SDPUC, the NPSC, and the FERC.

We transport natural gas for other gas suppliers and marketers in South Dakota and Nebraska. In South Dakota we provide natural gas sales to a number of large-volume customers delivered through the distribution system of an unaffiliated natural gas utility company.

Our principal address is 125 S. Dakota Avenue, Sioux Falls, South Dakota 57104, and our telephone number is (605) 978-2908. Our Web address is www.northwesternenergy.com. Information contained on our Web site is not incorporated by reference into this proxy statement, and you should not consider information contained on or referred to by our Web site as part of this proxy statement.

Babcock & Brown Infrastructure Limited

BBIL, along with BBIT, form Babcock & Brown Infrastructure, or BBI. BBI is a utility infrastructure company based in Sydney, Australia, listed on the Australian Stock Exchange (ASX: BBI) and admitted to the ASX 200 Index. BBI has a current enterprise value of approximately US$4.9 billion and equity value of approximately US$1.7 billion. Each share in BBIL is stapled to a unit of BBIT. Babcock & Brown Investor Services Limited, a subsidiary of Babcock & Brown Limited (ASX: BNB), or Babcock & Brown, is the Trustee for BBIT. BBI is rated investment grade by Moody’s Investors Service.

 

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BBI was formerly known as Prime Infrastructure. Its principal activity is owning and managing utility and infrastructure businesses worldwide. BBI owns companies in electricity transmission and distribution, gas transmission and distribution, and transport infrastructure, and has ownership interests in thermal and renewable power generation.

BBI’s operations include the following businesses carried out in three segments: Energy Distribution, Transport Infrastructure and Power Generation:

•

Energy Distribution

•

Powerco, which provides electricity and gas distribution in the North Island of New Zealand and Tasmania, Australia;

•

IEG, which provides natural gas and LPG transmission, distribution and supply located in the United Kingdom, the Channel Islands, Isle of Man and Portugal;

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Cross Sound Cable, a HVDC transmission cable that links the electricity grids of New York and Connecticut.

•

Transport Infrastructure

•

Dalrymple Bay Coal Terminal, which is one of the world’s largest coal export facilities serving the Bowen Basin, Queensland, Australia;

•

PD Ports, the second largest port operator (by volume) and the owner of the largest port in the industrial northeast of the United Kingdom; and

•

WestNet Rail, a 51% equity interest in a rail infrastructure business based in Western Australia.

•

Power Generation

•

Interests in fossil and renewable power generation assets with a gross capacity in excess of 2,000 MW.

BBI’s energy sector management are utility executives with an average of more than 25 years experience in the electric and gas transmission and distribution business. BBI looks to each operating company to be managed locally and responsibly.

BBI is managed under long-term management agreements by Babcock & Brown Infrastructure Management Pty Limited, a subsidiary of Babcock & Brown.

Babcock & Brown has been conducting business in the U.S. utility industry for nearly 30 years. Babcock & Brown was originally founded in San Francisco, California; its global corporate headquarters moved to Sydney, Australia in October 2004. Babcock & Brown has more than 20 offices worldwide and is engaged in real estate, infrastructure, structured finance, renewables and transportation.

As described more fully below, BBI establishes each of its investments in an Australian holding company below BBIL. In turn, for each non-Australian investment, a single purpose holding company is formed in that jurisdiction. Companies such as BBI that operate in multiple jurisdictions often form two holding companies to segregate investments, limit the reach of unforeseen liabilities and to enable efficient tax structuring. This structure also enables expansion of the local entity independent of other parent operations and investments.

 

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For the merger with NorthWestern, the following companies constitute the organizational structure:

BBI US Holdings Pty Ltd.

BBI US Holdings Pty Ltd. is a direct wholly owned Australian subsidiary of BBIL that was formed to hold the equity interests in BBI US Holdings II Corp.

BBI US Holdings II Corp.

BBI US Holdings II Corp., a Delaware corporation, is a wholly owned subsidiary of BBI US Holdings Pty Ltd. formed to hold the equity interests in BBI Glacier Corp. and, following completion of the acquisition, in NorthWestern.

BBI Glacier Corp.

BBI Glacier Corp., a Delaware corporation and a wholly owned indirect subsidiary of BBIL, is a special purpose company formed to merge with and into NorthWestern. BBI Glacier Corp. is a direct subsidiary of BBI US Holdings II Corp., which is in turn a wholly owned subsidiary of BBI US Holdings Pty Ltd.

None of BBI Glacier Corp., BBI US Holdings Pty Ltd. or BBI US Holdings II Corp. has conducted any business operations other than incidental to their formation and in connection with the transactions contemplated by the merger agreement. Each was formed solely for the purpose of engaging in the merger and the transactions contemplated by the merger agreement.

For further information refer to the BBI Web site: www.bbinfrastructure.com. Information on BBI’s Web site is not included or incorporated into this proxy statement, and you should not consider information contained on or referred to by BBI’s Web site as part of this proxy statement.

 Structure of Transaction

The proposed transaction is a merger of BBI Glacier Corp., a wholly owned indirect subsidiary of BBIL, with and into NorthWestern with NorthWestern surviving the merger as a wholly owned indirect subsidiary of BBIL. The following will occur in connection with the merger:

•

Each share of our common stock issued and outstanding immediately prior to the effective time of the merger (other than shares held directly or indirectly by us or BBIL or any of its subsidiaries, shares held by dissenting stockholders who exercise and perfect their appraisal rights under Delaware law, unvested restricted shares and shares held in the disputed claims reserve) will automatically be cancelled and converted into the right to receive $37.00 in cash, without interest and less any required withholding taxes.

•

Each unvested share of our restricted common stock that is issued and outstanding immediately prior to the effective time of the merger shall vest in full, become free of restrictions and shall be converted into the right to receive $37.00, without interest and less any required withholding taxes.

•

Each share of our common stock that is owned by us as treasury stock, by any of our subsidiaries, or by BBIL or any of its subsidiaries, immediately prior to the effective time of the merger will automatically be cancelled and retired and will cease to exist. No consideration will be delivered in exchange for those shares.

•

Each share of our common stock issued and outstanding and held in the disputed claims reserve immediately prior to the effective time of the merger will automatically be cancelled and converted into the right to receive $37.00 in cash, without interest and less any required withholding taxes.

 

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•

Upon the surrender to the paying agent of an original copy of an outstanding warrant to purchase shares of our common stock, the paying agent will pay to the holder of such warrant an amount in cash, without interest and less any required withholding taxes, equal to the product obtained by multiplying:

•

the total number of shares of our common stock issuable upon the exercise in full of such warrant, by

•

the excess, if any, of $37.00 over the exercise price per share of common stock under such warrant.

•

Each deferred stock unit, (representing rights based on a share of our common stock) which is outstanding under our 2005 Deferred Compensation Plan for Nonemployee Directors immediately prior to the effective time of the merger will automatically be converted into the right to receive $37.00 for each share that is subject to the deferred stock unit, without any interest and less any required withholding taxes, from us or the surviving corporation, as applicable. The holder of such deferred stock unit will be entitled to receive such amount at the time previously selected by such holder pursuant to the terms of any deferral election made with respect to such deferred stock unit, subject to the terms and conditions set forth in our 2005 Deferred Compensation Plan for Nonemployee Directors and compliance with applicable tax law and regulations.

•

Each share of BBI Glacier Corp.’s common stock, par value $.01 per share, all of which are held indirectly by BBIL, will be converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $.01 per share, of the surviving corporation and such shares will be the only outstanding shares of capital stock of the surviving corporation.

•

Our stockholders will no longer have any interest in, and will no longer be stockholders of, our company and will not participate in any of our future earnings or growth.

•

Our common stock will no longer be listed on the Nasdaq National Market and price quotations with respect to our common stock in the public market will no longer be available.

•

The registration of our common stock under the Exchange Act will be terminated.

The following is a chart depicting the post-merger corporate structure:

	Babcock & Brown Infrastructure
	Babcock & Brown Infrastructure Limited							Babcock & Brown Infrastructure Trust
		BBI US Holdings Pty Ltd.
		BBI US Holdings II Corp.
		NorthWestern Corporation

 

 

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 Management and Board of Directors of the Surviving Corporation

The board of directors of BBI Glacier Corp. will be the board of directors of the surviving corporation upon the completion of the merger. Our officers will remain as the officers of the surviving corporation upon the completion of the merger.

 Background of the Merger

Our Emergence from Bankruptcy

Despite the fact that we have existed for more than 80 years and are one of the largest providers of electricity and natural gas in the Upper Midwest and Northwest, we effectively became a new company when we emerged from bankruptcy on November 1, 2004. Following emergence from bankruptcy our company has been engaged primarily in transmitting and distributing electricity and natural gas within our service territories, having exited the non-core businesses in which we engaged pre-bankruptcy. Our outstanding debt was significantly reduced in the bankruptcy process as the holders of our unsecured debt received new shares of our common stock in cancellation of a portion of our debt. All of the outstanding shares of common stock of the pre-bankruptcy company were cancelled. A new board of directors was appointed and took office on November 1, 2004, after having been selected and approved by our creditors’ committee following a national search by a well respected executive search firm and installed by the bankruptcy court upon confirmation of our plan of reorganization.

In connection with our emergence from bankruptcy, we reflected the terms of the Second Amended and Restated Plan of Reorganization, dated as of August 18, 2004, or the Reorganization Plan, in our consolidated financial statements as of the close of business on October 31, 2004, applying fresh-start reporting under Statement of Position 90-7 “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.” Under fresh-start reporting, a new reporting entity is deemed to be created, and the value of the assets and liabilities on our financial statements are adjusted to reflect their estimated fair value. As a consequence, our financial statements post-bankruptcy are not generally comparable to our financial statements pre-bankruptcy.

Upon our emergence from bankruptcy, our board of directors focused on establishing a financially sound utility business that provided reliable and efficient service to its customers. This strategic focus was underscored by the fact that during the bankruptcy process our creditors’ committee, whose members became some of our largest stockholders, rejected various offers to sell all or portions of our company. Our board believed that it would be necessary to establish a proven track record of sustainable financial performance and resolve most, if not all, significant pending bankruptcy-related claims before other means of maximizing stockholder value could be reasonably evaluated. No specific minimum timeframe was established for these goals to be achieved.

2005

On November 1, 2004, in connection with the Reorganization Plan, we and certain of our significant stockholders entered into a registration rights agreement, pursuant to which we agreed to register the shares of our common stock held by such stockholders. In response to a request by such stockholders on March 18, 2005, we filed a registration statement on Form S-3, or S-3 registration statement, registering (i) approximately 13 million shares of our common stock for resale owned by certain of our stockholders (including shares of our common stock issuable upon exercise of warrants outstanding), (ii) approximately 1.5 million common stock warrants for resale owned by certain of our large stockholders, (iii) shares of our common stock issuable upon exercise of those warrants, and (iv) up to an aggregate of approximately 4 million additional shares of our common stock potentially issuable to our stockholders in accordance with our Reorganization Plan. We filed amendments to the registration statement on May 31, July 15 and July 28, 2005, respectively, and the registration statement was declared effective by the SEC on August 8, 2005. However, our largest stockholders decided not to proceed with any sale pursuant to the registration statement.

 

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Montana Public Power, Inc.

Approximately four months after we emerged from bankruptcy, Montana Public Power, Inc., or MPPI, a nonprofit corporation without any significant assets formed by the Montana Public Power Authority, which was formed in 2004 by local governments of the cities of Bozeman, Great Falls, Helena, Missoula and Butte-Silver Bow city/county, Montana, informally suggested that it would be interested in acquiring our company. Previously, on May 12, 2004, we had received a statement of interest and preliminary offer from MPPI to acquire certain assets, licenses, and business of our company for $900 million in cash and assumption of approximately $218.5 million of outstanding indebtedness and $140 million of qualifying facility contracts.

On March 17, 2005, two members of our board of directors met with MPPI’s financial and legal advisors, who indicated that MPPI would be interested in acquiring our company at a price of $32.50 per share. In a letter dated April 15, 2005, MPPI’s financial advisor requested that our board consider this informal proposal.

Over the course of the next several months, our board engaged in a detailed review of MPPI’s proposal with our financial, legal and regulatory advisors. Ultimately, our board concluded that a transaction with MPPI at that time would not be in the best interest of our stockholders for several reasons, including (i) insufficient value of the MPPI offer in relation to our company’s intrinsic value; (ii) lack of any compensation from MPPI to our company in the event the transaction did not close for reasons attributable to MPPI; and (iii) legal and regulatory concerns regarding MPPI in connection with the consummation and execution of a transaction. The investment banking firm that was helping us with MPPI’s proposal at the time – and that had also worked for us during our reorganization – agreed with our board that the proposal was not attractive. On June 24, 2005, our board advised MPPI that it was rejecting its proposal.

Nevertheless, in a letter dated June 30, 2005, MPPI publicly proposed an acquisition of our company on substantially the same terms as previously indicated. On July 7, 2005, we announced that our board of directors had rejected MPPI’s proposal offer. Later that same day, MPPI issued a press release reiterating its commitment to acquire our company. On July 13, 2005, MPPI issued a press release stating that it had met with stockholders holding more than 50% of our common stock.

On July 14, 2005, we publicly detailed our board of directors’ rationale for its decision to reject MPPI’s unsolicited proposal, including (i) the existence of significant legal, regulatory, financial and potential tax risks due to the proposed transaction’s complex structure, (ii) the fact that all closing risk would be borne by our stockholders, (iii) the fact that MPPI’s proposal relied upon 100% leverage and would have increased our debt to more than $2 billion and the resulting “no equity” leveraged buyout would have been financed by our customers and assets; (iv) MPPI’s financing was only a “best efforts” commitment that was subject to a myriad of market and transaction risks and uncertainties; and (v) MPPI’s proposed financing may have posed insurmountable obstacles to receiving regulatory approvals.

Following the public disclosure of MPPI’s proposal, certain of our largest stockholders began pressuring our board of directors to sell our company and subsequently criticized our board for rejecting MPPI’s offer. As a result, on July 19 and 20, 2005, two members of our board and certain members of our management, had a meeting with certain of our stockholders and their advisors. At this meeting, they explained the directors’ rationale for their decision to reject MPPI’s proposal.

On or about August 1, 2005, we retained Credit Suisse as our financial advisor. Over the course of the next several months, our management met with the representatives of certain of our largest stockholders to explore various ways in which to address their concerns, including assisting them in monetizing all or a portion of their investment in our company through a secondary offering of shares registered on the S-3 registration statement.

 

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On September 28, 2005, certain members of our management met with certain of our large stockholders to discuss a secondary equity offering. In this meeting, these stockholders communicated their expectation of a minimum sale price which was above the MPPI offer of $32.50 per share. We determined that guaranteeing such price to certain stockholders was not in the best interests of all of our stockholders.

On September 29, 2005, we received another letter from MPPI reiterating its interest in acquiring our company and advising us that it had received indications of support from stockholders representing approximately 50% of our common stock.

On October 19, 2006, we received a letter from Harbert Distressed Investment Master Fund, Ltd., now known as Harbinger Capital Partners Master Fund I, Ltd., or Harbinger, our largest stockholder at that time, urging our board to promptly: (i) commence negotiations with MPPI regarding its proposal; (ii) begin a formal sale process to solicit competing offers which would be superior to the MPPI proposal; or (iii) demonstrate why our company, on a stand-alone basis, represented superior value to MPPI’s proposal. At that time we also learned from Harbinger’s financial advisors that Harbinger had instructed its legal counsel to begin drafting tender offer documents. On that date, Credit Suisse discussed its preliminary analysis of issues relating to a potential tender offer by Harbinger with Michael J. Hanson, our President and Chief Executive Officer, including its view that such a tender offer seemed unlikely to succeed at that time without the support of our board.

On October 20, 2005, following a detailed review, including discussion with our legal and financial advisors, our board of directors concluded that MPPI’s renewed proposal was not in the best interests of our stockholders and determined to reject MPPI’s proposal. The investment banking firm that had helped us assess MPPI’s earlier offer also agreed that the proposal was not attractive. Among other reasons, our board rejected the proposal because:

•

the financial terms of MPPI’s proposal remained substantially unchanged from the previously rejected proposal that our board had determined was not compelling;

•

our board believed MPPI’s proposal to pay a break-up fee of $700,000 in certain circumstances if a transaction was not consummated was inadequate;

•

our board believed that there was a significant risk that MPPI would not be able to obtain necessary regulatory approvals for a 100% debt financed transaction; and

•

our board continued to have significant reservations concerning legal, regulatory and financing issues related to the proposal.

On October 21, 2005, we sent a letter to MPPI in response to its September 29 letter formally rejecting MPPI’s proposal.

At a meeting of our board of directors on November 8, 2005, following a discussion with our financial and legal advisors, our board authorized a share repurchase program permitting us to acquire up to $75 million of our common stock, representing approximately 7% of our outstanding shares.

On November 16, 2005, as part of the announced share repurchase program, we entered into a Rule 10b5-1 trading plan with Credit Suisse, which provided for predetermined repurchases of our common stock, subject to the terms of the trading plan.

On November 17, 2005, upon the request of certain large stockholders, we sent a preliminary proposal to such stockholders, subject to authorization by our board of directors, to purchase their shares based upon a graduated formula which had a certain floor price. Our management and Credit Suisse subsequently had discussions with these stockholders and their advisors, which culminated in the largest stockholder turning down that proposal.

 

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Black Hills Corporation

In addition to MPPI, during the period between early 2005 and Fall 2005, at least one entity that later submitted a bid to acquire our company approached a member of our board to express an informal interest in acquiring our company. Specifically, between early and mid-2005, the Chairman and Chief Executive Officer of Black Hills Corporation, or Black Hills, a regional utility company, talked to a board member about a possible combination. At that time, however, Black Hills did not pursue its inquiry with the full board.

On November 1, 2005, Black Hills’ Chairman and Chief Executive Officer spoke with Mr. Hanson and expressed an interest in acquiring our company in a stock-for-stock transaction. Mr. Hanson related these discussions to our board of directors at the November 8, 2005 board meeting. Following a detailed discussion of Black Hills’ interest in acquiring our company, including consultation with our legal and financial advisors, our board concluded that a stock-for-stock transaction with Black Hills would not be in the best interests of our stockholders at that time. In large part, our board’s determination to reject Black Hills’ proposal reflected a concern that our stock was currently undervalued and Black Hills’s stock was currently overvalued by the market. Mr. Hanson subsequently informed Black Hills that we were not interested in pursuing merger discussions with Black Hills at that time, but would consider any offer Black Hills might make.

On November 21, 2005, we received an unsolicited proposal from Black Hills to acquire our company in a stock-for-stock merger with a purported value of between $33.00 to $35.00 per share, the exact amount to be determined after satisfactory completion of mutual due diligence and the negotiation of definitive agreements.

Our board of directors met on November 22, 2005 to review Black Hills’ proposal and recent communications from some of our stockholders. Our board was advised that Harbinger and Fortress Investment Group and Franklin Mutual Advisors, two of other significant stockholders, had entered into a confidentiality agreement with Black Hills and, as a result, had knowledge of certain communications between us and Black Hills. Our board was also advised that Harbinger had demanded that the board act quickly on the Black Hills proposal or resign or expect a proxy fight. Following a detailed review of the Black Hills proposal, including a discussion regarding the possibility of a hostile tender offer and the proposed terms of a confidentiality agreement with Black Hills, our board determined that our company should not provide Black Hills with access to material nonpublic information regarding our company unless Black Hills agreed to the inclusion of a standstill provision in the proposed form of confidentiality agreement.

On November 23, 2005, we issued a press release announcing the receipt of the Black Hills offer and stating that our board of directors, consistent with its fiduciary duties and in consultation with our legal and financial advisors, would meet to review and evaluate the Black Hills proposal and other potential strategic alternatives.

During our negotiations of a confidentiality agreement, Black Hills warned us that based upon their discussions with our largest stockholders, our board of directors faced removal from office unless we immediately commenced negotiations with respect to its proposal and that it was considering a hostile tender offer. Black Hills also refused to agree to our proposed standstill provision.

On November 28, 2005, we received a letter from Harbinger demanding, pursuant to Delaware law, to inspect and copy the list of our stockholders on December 2, 2005, and on a weekly basis thereafter.

Our board of directors met on November 29, 2005 to continue its review of the proposal made by Black Hills and to begin to consider various other strategic alternatives. The board engaged in a detailed discussion of the Black Hills proposal and received an update on the status of negotiations regarding the terms of a confidentiality agreement. Our management informed the board that Black Hills continued to refuse to agree to our proposed standstill provision. The board also discussed the possibility of considering other potential strategic alternatives in conjunction with its review of the Black Hills proposal.

 

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Management reviewed with the board the potential strategic alternatives available to our company, including (i) a sale of the entire company, (ii) a sale of certain assets of our company, (iii) a recapitalization, (iv) a strategic acquisition by us, (v) strategic investments by a third party in us, (vi) continued execution of our long-term strategic plan and (vii) combinations of certain of those alternatives.

During the course of the November 29 meeting, our board of directors also discussed measures that could be taken to prevent Black Hills from launching a hostile tender or exchange offer or otherwise engaging in transactions with Harbinger while the board was considering all available alternatives to maximize stockholder value. One of the alternatives discussed with the board was a stockholder rights plan that would deter unfair or coercive takeovers while allowing the board adequate time and opportunity to assess and discuss all available strategic alternatives in an effort to maximize stockholder value. Near the end of the meeting, the board authorized management to commence a comprehensive review of strategic alternatives with the assistance of our financial and legal advisors and to comply with Harbinger’s demand for the stockholder list. The board also requested that management and the financial and legal advisors prepare a detailed presentation regarding a stockholder rights plan.

On November 29, 2005, City of Livonia filed a complaint, Case No. 05-4178, against us and our board of directors in the U.S. District Court for the District of South Dakota for breach of fiduciary duties as a result of our alleged failure to negotiate with MPPI and Black Hills.

At a meeting on December 5, 2005, our board, together with our legal and financial advisors, continued its review of the Black Hills proposal as well as other available strategic alternatives. Management updated the board on the status of negotiations with Black Hills regarding a confidentiality agreement including Black Hills continued refusal to agree to our proposed standstill provision.

Our board then engaged in a review, including discussions with our legal and financial advisors, of the current protections we had against an unfair or coercive takeover bid, and the advantages and disadvantages of adopting a stockholder rights plan to provide our board with the opportunity to properly evaluate all available strategic alternatives in an effort to maximize stockholder value, including the risk of potential litigation as a result of the adoption of the rights plan. Following that review and discussion, our board authorized adoption of a rights plan.

On December 6, 2005, we issued a press release announcing that our board of directors had commenced, with the assistance of our financial advisor, a comprehensive review of possible strategic alternatives for us to enhance stockholder value and had adopted the stockholder rights plan.

On December 9, 2005, we received a letter from Black Hills reiterating its November 21 proposal as well as its continuing refusal to agree to our proposed standstill provision.

On December 12, 2005, we sent a letter to Black Hills advising Black Hills that our board had initiated an orderly review and evaluation of available strategic alternatives and that Black Hills’ proposal would be among the alternatives reviewed and considered, but that we were not prepared to provide Black Hills with access to material nonpublic information regarding our company unless it agreed to a confidentiality agreement that included a standstill provision.

On December 12, 2005, City of Livonia filed a motion for a temporary restraining order seeking to require our board to redeem the stockholder rights plan. On December 16, 2005, the South Dakota federal court denied City of Livonia’s request for a temporary restraining order and scheduled a trial for March 21, 2006 on City of Livonia’s request for a permanent injunction to require the board of directors to redeem the stockholders rights plan. The trial has been continued four times and is now set for August 8, 2006.

During December 2005 and January 2006, we received several letters from some of our stockholders urging us to pursue a strategic combination with Black Hills.

 

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2006

Beginning in December 2005 and continuing through January 2006, Credit Suisse, at the direction of our board of directors, contacted parties that our board believed, based on discussion with management and our legal and financial advisors, were the most likely to be interested in acquiring our company.

On January 5, 2006, our board of directors received a letter from Harbinger informing the board of Harbinger’s intention to propose a slate of directors and solicit stockholders to vote for its slate with the goal of removing the board of directors at the next annual meeting of stockholders. In addition, Harbinger requested that we answer a number of questions in connection with our stockholder rights plan and the timing of our next annual meeting.

On January 11, 2006, we sent a letter to Harbinger responding to its January 5 letter (i) notifying Harbinger that we believed that its January 5 letter contained a number of misstatements with regard to our treatment of MPPI’s and Black Hills’ respective proposals, (ii) repeating our board’s belief that the deliberate exploration of all strategic alternatives was the best approach to maximize the interests of all our stockholders, as well as our customers, employees and the communities we serve, (iii) advising Harbinger that it should consult with its legal counsel on the impact that the rights plan may have on its planned activities, (iv) informing Harbinger that the rights plan had no effect on its ability to solicit proxies for the forthcoming annual stockholders’ meeting in accordance with applicable law and (v) stating that we had not yet determined a date for the 2006 annual meeting of stockholders.

On January 12, 2006, our board of directors received another letter from Harbinger expressing disappointment with our January 11 letter and again requesting that we provide responses to substantially the same questions Harbinger had previously asked regarding our stockholder rights plan.

At a meeting of the board of directors on January 14, 2006, management updated our board with respect to the status of discussions with potential transaction partners, including a discussion with another utility regarding a strategic merger. These discussions were not pursued, in part, because the other company expressed serious reservations about our ability to obtain stockholder approval for a strategic merger based upon the public statements of our largest stockholders.

During the course of the January 14 meeting, management and Credit Suisse provided our board with an update on the eight parties that had expressed an interest in a potential transaction involving our company. Credit Suisse also reported that three parties (other than Black Hills and MPPI) had signed a confidentiality agreement and submitted preliminary indications of interest in acquiring our company at prices ranging between $32.50 and $35.00 per share, including BBIL’s indication of interest of $34.50 per share The board asked questions regarding these preliminary indications of interest and other strategic alternatives, including minority investment in our company either directly or in conjunction with a purchase of common stock from some of our largest stockholders, an industry roll-up strategy and the possibility of selling the South Dakota and Nebraska assets followed by another transaction.

Management also reviewed with the board the status of the Black Hills offer including Black Hills’ continued refusal to agree to our proposed standstill provision. Management also updated our board that the implied value of the Black Hills proposal, at the current price of Black Hills stock, had declined from between $33.00 to $35.00 per share of our common stock to between $30.70 and $32.50 per share of our common stock. Management also informed the board that there had been no discussion on price assurances or a price collar that would protect our stockholders against fluctuations in the value of Black Hills stock. After further discussion, our board concluded that it was in the best interests of our company to continue to insist that Black Hills agree to a standstill provision similar to the form of provision to which other interested parties had agreed before we would provide Black Hills with access to material nonpublic information regarding our company.

 

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During the course of the meeting, representatives of Balhoff & Rowe, LLC, our special regulatory advisor, advised our board regarding specific regulatory considerations in the board’s review of strategic alternatives, including describing the various general regulatory considerations and factors that the board should consider and discussing the various factors that the state regulatory commissions would consider in its determination of approval of a transaction. The board also discussed with Balhoff & Rowe the possibility and advisability of signing a confidentiality agreement with MPPI, and the ability of MPPI to keep information confidential due to Montana’s public records and open meetings laws.

The board authorized management and Credit Suisse to approach certain of the interested parties to ascertain their interest in a sponsored minority investment transaction, including structure, pricing and governance provisions. The board also requested that management and its advisors begin preparation of an electronic data room and contact certain other parties that may have an interest in a transaction.

On January 16, 2006, our board of directors sent a letter to Harbinger responding to the January 12 letter informing Harbinger that it would receive notice of the date of our 2006 annual stockholders meeting at the same time as all other stockholders, as required by law, and that such notice and date would be in accordance with law and our bylaws. The letter also provided general answers to Harbinger’s request for further clarification of the board’s intended application of the rights plan as it related to various actions that Harbinger was contemplating.

On January 19, 2006, our board of directors received a letter from Harbinger stating that Harbinger had decided to conduct a stockholder referendum asking our stockholders their views on the commencement of an open and formal process for the sale or merger of our company, the redemption of the stockholder rights plan and the removal of any other obstacles that would prevent the sale or merger of our company. Harbinger indicated that the referendum would not be a formal vote under applicable law or binding on our board, but simply an expression of the opinion of our stockholders on these proposals. In the letter, Harbinger stated its belief that such referendum would not trigger the stockholder rights plan. Nevertheless, Harbinger demanded that the board inform it whether it was the board’s view that such referendum would trigger the rights plan.

At a meeting of the board of directors on January 27, 2006, our board, together with our legal and financial advisors, continued to review strategic alternatives available to our company, including potential forms of minority investment by BBIL, but concluded that such alternatives would not be attractive to or in the best interest of our stockholders at that point in time.

At the January 27 meeting, our board, together with our legal, regulatory and financial advisors, reviewed the possibility of selling our Montana business, including the potential tax consequences, the potential utilization of our net operating losses in such a sale, and the ability of MPPI to engage in due diligence of our confidential information in compliance with applicable Montana law. The board authorized management to simultaneously have a dialogue with MPPI and the other interested parties.

At a meeting of our board of directors on February 7, 2006, management, Credit Suisse and Manatt, Phelps & Phillips, LLP, or Manatt, our special legal counsel, updated the board on the status of negotiations with Black Hills regarding the terms of a confidentiality agreement containing a standstill provision. Our board, together with our legal and financial advisors, also continued to review strategic alternatives available to our company.

On February 7, 2006, we issued a press release providing an update to our stockholders regarding our review of strategic alternatives. Among other things, we announced that (i) we had entered into confidentiality agreements with a select number of parties who had expressed an interest in participating in the process, (ii) we expected formal due diligence to commence as early as that week, (iii) our board had not yet decided to pursue any specific strategic alternative and (iv) it was expected that the board will make its determination following completion of due diligence and confirmation of interest by parties, which could take several weeks. Later that day, Black Hills executed a confidentiality agreement with our company containing a standstill provision.

 

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On February 10, 2006, we opened an online data room where all bidders interested in pursuing a transaction with our company that had executed confidentiality agreements with our company could have access to information regarding our company.

At a meeting of our board of directors on February 13, 2006, management, Credit Suisse and Manatt updated the board on the strategic review process, including parties with whom we had executed confidentiality agreements and discussed with the board the latest draft of the confidential information memorandum.

On February 13, 2006, Harbinger filed a complaint, CA No. 1937-N, in the Court of Chancery of the State of Delaware seeking, among other things, a declaration that it would not trigger the stockholder rights plan if it (i) submitted its nonbinding referendum to all stockholders and (ii) solicited other stockholders for candidates for the board of directors. Harbinger also filed a motion for a preliminary injunction and for an expedited hearing.

On February 16, 2006, we executed a confidentiality agreement with MPPI’s advisors under which information would be provided only to MPPI’s advisors due to concerns over the ability of MPPI to maintain the confidentiality of our information under Montana law. On February 17, 2006, we opened a separate online data room for MPPI containing documents regarding our Montana-only business.

On February 17, 2006, each of the prospective bidders that had executed a confidentiality agreement received a copy of our confidential information memorandum.

On February 23, 2006, the Delaware court denied Harbinger’s motion for expedited hearing, finding that the issues that Harbinger raised were before the South Dakota federal court in the City of Livonia lawsuit and should be resolved there. The Delaware court advised that, if the South Dakota court did not decide Harbinger’s issues, Harbinger could renew its request after the South Dakota court ruled on the request to require the board of directors to redeem the stockholders rights plan. Harbinger subsequently dismissed its Delaware suit, without prejudice, on May 15, 2006.

As part of our ongoing strategic review process, a total of 23 parties were contacted by the end of February 2006. Of those parties, 15 parties were prospective strategic bidders and eight parties were prospective financial/infrastructure bidders. Of the 23 parties contacted, 10 parties signed confidentiality agreements.

On or around March 1, 2006, we received indications of interest from four strategic buyers and four financial/infrastructure buyers ranging in price from $31 to $35 per share of our common stock. Based on these indications of interest, six parties were invited to continue in the next phase of the strategic review process.

At a meeting of our board on March 2, 2006, our board, together with management and our legal and financial advisors reviewed the terms of our stockholders rights plan and the possible threat that Harbinger, Black Hills, and other stockholders or interested parties might pose by, among other things, acquiring shares or otherwise engaging in transactions that could block or interfere with our strategic review process. After a discussion, the board determined that redemption of the stockholders rights plan was not advisable at that time.

On March 6, 2006, we issued a press release announcing August 2, 2006 as the date for the 2006 annual meeting of our stockholders and June 5, 2006 as the record date for the annual meeting.

On March 7, 2006, Harbinger intervened in the City of Livonia lawsuit for the limited purpose of briefing the two issues it raised in its Delaware action: whether the non-binding referendum or the solicitation of candidates from other stockholders would trigger the stockholders rights plan. Harbinger litigated its intervention suit for more than two months, but ultimately dismissed it, without prejudice, on May 12, 2006.

 

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On March 8, 2006, we received a letter from Harbinger requesting, pursuant to Delaware law, that an updated list of our stockholders be made available to Harbinger no later than March 10, 2006, and that the stockholder list be updated on a weekly basis.

Between March 9, 2006 and March 21, 2006, our management was made available and conducted presentations in Minneapolis, Minnesota for the six remaining bidders.

At a meeting on March 17, 2006, our board of directors authorized the formation of a Mergers & Acquisition Committee, or M&A Committee, of the board and appointed three independent directors, D. Louis Peoples (Chairman), Stephen P. Adik and Philip L. Maslowe to the M&A Committee. Our board established the M&A Committee to review, assess and assist the board in reviewing and assessing strategic alternatives available to our company and to oversee management and our financial, legal and other professional advisors in connection with such review and assessment. The board also discussed the advisability of redeeming the stockholders rights plan, but determined, upon discussions with Manatt, that since there had been no material change in the facts, circumstances and threats facing us that it was not in the best interests of our stockholders to redeem the plan at that time.

At the March 17 meeting, our board, together with our legal and financial advisors, discussed the status of the strategic review process, including the potential for MPPI (which was solely interested in our Montana assets) to team up with another bidder that was primarily interested in our non-Montana assets. Our board also authorized an amendment to our bylaws providing that, with respect only to our 2006 annual meeting of stockholders, notice for nominations of persons for election to the board of directors or other proposed business would be considered timely if delivered to our corporate secretary at our principal executive offices not later than June 5, 2006. At a meeting of our board of directors on May 3, 2006, the deadline for such notice was extended to June 15, 2006.

Our M&A Committee met on March 20, 23, 28, 30 and 31, 2006 and, with the assistance of our legal and financial advisors, reviewed the status of the strategic review process and approved the form of the final bid letter and agreement and plan of merger to be provided to all interested parties in connection with the bidding process. The M&A Committee also discussed the possibility of engaging a second investment banking firm to provide an additional opinion regarding the fairness of any transaction into which we proposed to enter. The M&A Committee’s consideration of acquiring an additional fairness opinion was due to the M&A Committee’s desire to abide by best corporate governance practices.

On March 24, 2006, we provided MPPI access to the online data room containing due diligence information regarding our entire company.

On March 30, 2006, on our behalf, Credit Suisse sent the remaining six bidders a letter outlining the procedures for submitting a final bid by April 10, 2006, including submission of final due diligence requests. On March 31 and April 1, 2006, Credit Suisse and Manatt circulated to the six remaining bidders an initial draft form of the merger agreement for the bidders to review and markup in connection with their bid submissions.

On March 31, 2006, our board of directors adopted the 2006 Officer Severance Plan and the 2006 Employee Severance Plan, or the 2006 Severance Plans. The purpose of the 2006 Severance Plans was to provide an incentive to our officers and employees to remain employed with us by providing severance and change of control benefits to all eligible officers and employees. Prior to the adoption of the 2006 Severance Plans, we did not have any agreement, arrangement or understanding with any of our officers or employees regarding severance or change of control benefits.

During the week of April 3, 2006, on our behalf, representatives of Credit Suisse contacted all of the interested parties and their advisors in order to facilitate the resolution of any remaining due diligence items and any open issues in connection with the preparation of their final proposals.

 

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At an M&A Committee meeting on April 6, 2006, the M&A Committee, together with our legal and financial advisors, reviewed the status of the strategic review process and the status of the bids being prepared by the remaining six parties. Credit Suisse advised the M&A Committee that one of the six remaining bidders had decided not to submit a final bid, but would be available to meet with us and our advisors on an exclusive basis.

Toward the end of the April 6 meeting, Credit Suisse was excused and the M&A Committee discussed with management and our legal advisors initial contacts by management with other investment banking firms regarding the possibility of obtaining an additional opinion with respect to the fairness, from a financial point of view, of the consideration to be received by our stockholders pursuant to any sale transaction.

On April 10 and 11, 2006, five parties (three strategic and two financial/infrastructure) submitted final proposals ranging from $32.71 to $37.60 per share. Two bidders also submitted proposals for parts of the company (our Montana assets or South Dakota/Nebraska assets). All bids remained open until May 5, 2006. The sixth bidder declined to submit a proposal unless we granted it exclusivity. BBIL’s final proposal contained two options. Option A was an all cash offer for $36.60 per share of our common stock. Option B was $11.02 in cash and $26.58 in BBI stapled securities listed on the Australian Stock Exchange for a total value per share of our common stock of $37.60. BBIL’s proposals contained the two highest bids. One bidder asserted that its bid was “worth” $38.10 per share, by adding to its cash bid its own valuation of assets for which it did not bid and failing to account for certain liabilities attendant to its bid. Based on our board’s review of the allegedly higher bid with our legal and financial advisors, our board believed that the real value of the bid was approximately $34.23. Although the bid was characterized as a bid for our entire company, it was actually an all cash offer for our Montana assets, without an explicit assumption of approximately $140.5 million of liabilities under qualified facility contracts, and it attributed a value to the balance of our company conditioned on the sale of non-Montana assets to third parties at an assumed price.

During the week of April 10, 2006, representatives of our legal and financial advisors contacted the six remaining bidders and their advisors to clarify material terms of their bids which raised concerns for us.

On April 11, 2006, we began entering into indemnification agreements with all of our directors and certain senior members of our management. Prior to the execution of such indemnification agreements, our company was required to indemnify our directors and senior members of our management only under certain more limited circumstances pursuant to our certificate of incorporation and bylaws. Nevertheless, our board believed that it was reasonable, prudent and necessary and in the best interest of our stockholders for our company to enter into a contractual agreement to indemnify such persons to the fullest extent permitted by applicable law. The indemnification agreements were intended to help retain our directors and senior management. Pursuant to the indemnification agreements, we are generally required to indemnify such persons to the greatest extent permitted by law for liabilities arising out of such person’s service to us as a director or manager, if such person acted in good faith and in a manner that the person reasonably believed to be in or not opposed to our best interests and, with respect to criminal proceedings, if the person had no reasonable cause to believe that his or her conduct was unlawful. In addition, the indemnification agreements provide that we will make an advance payment of expenses to such person who has entered into an indemnification agreement, if such person requests such advance payment of expenses related to attorney fees and/or court costs, in connection with any proceeding relating to any fact or occurrence arising from or relating to events or occurrences specified in this paragraph.

On April 12, 2006, Credit Suisse, on our behalf, requested further information and clarification from each of the bidders regarding certain matters related to their respective bids.

On or around April 13, 2006, our financial and legal advisors notified two of the bidders that they would be permitted to work together to provide a joint proposal, and the two bidders were each provided a waiver of certain provisions under their respective confidentiality agreements with us to permit such collaboration.

 

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At a meeting of our board on April 14, 2006, our board, together with our legal and financial advisors, reviewed the five bids that had been submitted, including the terms, conditions and assumptions of each bid and the status of each bidder’s due diligence.

Representatives of Manatt then reviewed the significant issues raised by BBIL and two other bidders on the proposed form of merger agreement provided to all bidders. Manatt informed the board that the remaining two bidders had not submitted a markup of the merger agreement, but had, instead, provided conceptual comments. Representatives of Manatt and Balhoff & Rowe then reviewed the regulatory issues raised by each of the final proposals with our board.

Near the end of the meeting, Credit Suisse was excused and our board discussed with management and our legal advisors the status of discussion with other investment banks regarding the possibility of obtaining an additional opinion with respect to the fairness, from a financial point of view, of the consideration to be received by our stockholders pursuant to a sale transaction. Following that discussion, our board authorized management to retain one of the firms discussed at the meeting and to provide it with the necessary information to provide such a fairness opinion in connection with a sale transaction. On April 20, 2006, we retained Blackstone for such purpose.

After the April 14 board meeting, each bidder was asked to submit a further bid and was provided with specific guidance on price and non-price terms offered that it should consider improving.

On or around April 15, 2006, BBIL informed Credit Suisse that it was prepared to increase the proposed cash merger consideration in its bid to $37.00 per share in cash and to issue an irrevocable letter of credit in the amount of $70 million to our company to secure the amount payable by BBIL to us if BBIL breached certain of its obligations under the merger agreement.

At our request, based on the markups received and discussions with management and the board of directors, Manatt prepared a revised draft of the merger agreement for BBIL, which was delivered to BBIL on April 18, 2006. Manatt also sent a letter to the two other bidders that had submitted markups setting forth the principal areas of concern to us in their respective markups of the merger agreement.

On April 19, 2006, all five bidders formally submitted revised final proposals with prices ranging from $33.71 to $37.00 per share. BBIL’s cash offer had increased by $0.40 to $37.00 per share and remained the proposal with the highest net value. The bidder that had previously submitted a bid for our Montana assets conditioned on the sale of our remaining assets raised its estimate of the value its proposal to $38.62 per share, but the proposal included the same conditions as its prior proposal and was still viewed as being worth substantially less.

Over the next several days, LeBoeuf, Lamb, Greene & MacRae LLP, or LeBoeuf, special counsel to BBIL, and Manatt negotiated and discussed various provisions of the proposed form of merger agreement and, on April 20, 2006, Manatt sent to LeBoeuf a revised draft of the merger agreement reflecting the negotiations and discussions and containing a price of $37.00 per share of our common stock. Over the next several days, Manatt and LeBoeuf continued to negotiate the proposed form of merger agreement, the disclosure letter containing exceptions to the representations and warranties in the proposed form of merger agreement, BBIL’s financing commitment papers and related documents.

On April 22, 2006, representatives of our company, BBIL, Manatt and LeBoeuf met at the Los Angeles offices of Manatt and continued to negotiate the terms of the proposed form of merger agreement, including the circumstances under which the parties could terminate the merger agreement and the circumstances under which we would have to pay BBIL a termination fee and BBIL would have to pay us a business interruption fee. The negotiations also addressed the form and substance of the irrevocable letter of credit and the circumstances under which we would be able to draw upon such letter of credit. Later that afternoon, Manatt circulated to LeBoeuf a revised draft of the merger agreement.

 

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At the April 24, 2006 meeting of our M&A Committee, the M&A Committee, together with our legal and financial advisors, reviewed the revised final proposals that had been submitted by the five remaining bidders, including, where relevant, the status of negotiations or discussions regarding the terms of a proposed form of merger agreement. Following a discussion in which the members of the M&A Committee had the opportunity to ask questions of and receive answers from management, Credit Suisse, Manatt and Balhoff & Rowe, the M&A Committee concluded to recommend that the full board of directors accept BBIL’s revised final proposal.

Throughout the day on April 24, 2006, representatives of Manatt and LeBoeuf negotiated the final terms of the merger agreement and the final form of the irrevocable letter of credit.

On April 25, 2006, our board of directors convened a meeting to consider whether to approve BBIL’s proposal. Representatives of Manatt discussed with our board of directors the legal and fiduciary duties of directors in connection with an extraordinary transaction such as the proposed merger. Representatives of Credit Suisse provided an update regarding the sale process and the negotiations that had taken place since the board of directors last met on April 14, 2006. Credit Suisse discussed with our board of directors, among other things, the financial aspects of BBIL’s merger proposal.

Manatt then reviewed the terms of the proposed merger agreement with BBIL and other legal aspects of BBIL’s proposal, including a detailed discussion of the irrevocable letter of credit, the fee of $70 million payable under certain circumstances by BBIL to us and the fact that if a party other than BBIL were to make an alternative proposal to acquire us, we were able under certain circumstances to engage in substantive discussions and negotiations with such party and to terminate the merger agreement and pay a $50 million termination fee, in order to accept a superior offer.

Credit Suisse then discussed its financial analysis of the proposed merger and, at the board’s request, rendered to our board of directors its oral opinion, which was subsequently confirmed by delivery of a written opinion dated April 25, 2006, that, as of such date and based upon and subject to the assumptions, qualifications, limitations and other matters described in its written opinion, the consideration to be received by the holders of our common stock in the proposed merger, was fair, from a financial point of view, to such holders. The opinion rendered by Credit Suisse is described in more detail under “The Merger—Opinion of Credit Suisse Securities (USA) LLC” beginning on page 39. The full text of the written opinion of Credit Suisse, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinion, is included as Annex B to this proxy statement.

Our board of directors then requested that Blackstone render an opinion as to whether the proposed merger with BBIL was fair from a financial point of view to our stockholders. Blackstone delivered to our board of directors an oral opinion, which was subsequently confirmed by delivery of a written opinion dated April 25, 2006, that, as of such date and based upon and subject to the factors and assumptions set forth in the written opinion, the consideration to be received by the holders of our common stock in the proposed merger, was fair, from a financial point of view, to such holders. The opinion rendered by Blackstone is described in more detail under “The Merger—Opinion of The Blackstone Group L.P.” beginning on page 45. The full text of the written opinion of Blackstone, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinion, is included as Annex C to this proxy statement.

Following additional discussion and deliberation, during which our board asked questions or and received answers from management and our legal and financial advisors, our board unanimously approved the merger agreement and the transactions contemplated by the merger agreement and unanimously resolved to recommend that our stockholders vote to adopt the merger agreement.

On April 25, 2006, after the closing of trading on the Nasdaq National Market, we executed the merger agreement with BBIL. We thereupon issued a joint press release with BBIL announcing the execution of the merger agreement.

  

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Recommendation of Our Board of Directors; Our Reasons for the Merger

After careful consideration, including the reasons set forth below, our board of directors, by unanimous vote:

•

has determined that the merger agreement and the merger are advisable, fair to and in our best interests and the best interests of our stockholders;

•

has approved the merger agreement; and

•

recommends that our stockholders vote “FOR” the adoption of the merger agreement.

In the course of reaching its decision to approve the merger agreement, our board of directors consulted with our financial, legal and regulatory advisors and considered the following factors, each of which it believed supported its decision:

•

the potential value that might result from other alternatives available to us, including the alternative of remaining a stand-alone, independent company, as well as the risks and uncertainties associated with those alternatives;

•

general industry, economic and market conditions, both on an historical and on a prospective basis;

•

our recent emergence from bankruptcy;

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our ability under the terms of the merger agreement to continue to pay regular dividends to stockholders, consistent with past practices and to pay a supplemental and special dividend under certain circumstances;

•

the request by certain of our large stockholders that we seek a sale of our company;

•

the expectation that a proxy contest would result in a prolonged period of turmoil which would be harmful to us and our stockholders;

•

the evaluation we conducted with the assistance of our financial advisor, Credit Suisse; our legal advisor, Manatt, Phelps & Phillips, LLP; and our regulatory advisor, Balhoff & Rowe, LLC, which explored a possible sale of our company, sale of certain assets of our company and potential alternatives to a sale, including a leveraged recapitalization and strategic acquisitions, as well as continuing to operate as a stand-alone company;

•

the current and historical market prices of our common stock, including the market price of the our common stock relative to those of other industry participants and general market indices;

•

the opportunity for our stockholders to realize substantial value based on the receipt of $37.00 in cash per share of our common stock, representing a premium over the market price at which our common stock traded prior to the announcement of the merger;

•

the presentations of Credit Suisse and Blackstone, including their respective opinions as to the fairness, from a financial point of view, to the holders of our common stock of the merger consideration to be received by our stockholders in the merger (see “Opinion of Credit Suisse Securities (USA) LLC” and “Opinion of The Blackstone Group L.P.”);

•

the efforts made by us and our advisors to negotiate and execute a merger agreement favorable to us;

•

the financial and other terms and conditions of the merger agreement as reviewed by our board of directors (see “The Merger Agreement”) and the fact that such terms and conditions were the product of arm’s-length negotiations between the parties;

 

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•

the fact that the merger consideration is all cash, so that the transaction allows our stockholders to immediately realize a fair value, in cash, for their investment and provides our stockholders certainty of value for their shares;

•

the fact that, subject to compliance with the terms and conditions of the merger agreement, we are permitted to terminate the merger agreement, prior to the adoption of the merger agreement by our stockholders, in order to approve an alternative transaction proposed by a third party that is a “superior proposal,” upon the payment to BBIL of a $50 million termination fee (representing approximately 4% of the total equity value of the transaction) (see “The Merger Agreement—Termination” and “The Merger Agreement—Termination Fee and Business Interruption Fee”);

•

the availability of appraisal rights to holders of our common stock who comply with all of the required procedures under Delaware law, which allows such holders to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery (see “Appraisal Rights” and Annex D);

•

the commitment made by BBIL (i) to provide our employees with base salary, employee benefits and incentive compensation opportunities that are no less favorable in the aggregate than those provided immediately prior to the merger and (ii) for at least two years following the effective time of the merger, to employ, in the aggregate, approximately the same number of employees as employed by us immediately prior to the effective time of the merger and not effect any material reductions in our employee work force, each of which will encourage our employees to remain with us between signing of the merger agreement and the effective time of the merger;

•

the fact that BBIL has a history of acquiring utility assets and holding and operating such investments on a long-term basis;

•

the fact that if we terminate the merger agreement due to BBIL’s material breach or failure to perform any of its representations, warranties or covenants contained in the merger agreement and the breach or failure cannot be cured by April 25, 2007, BBIL would be required to pay us a $70 million business interruption fee and such fee is secured by an irrevocable letter of credit issued to us; and

•

the extent to which BBIL can comply with the “consent order” issued by the MPSC in connection with a sale of our company.

Our board of directors also considered a variety of risks and other potentially negative factors concerning the merger agreement and the merger, including the following:

•

the risk that the merger may not be completed in a timely manner or at all;

•

the fact that an all cash transaction would be taxable to our stockholders for U.S. federal income tax purposes;

•

the risks and costs to us if the merger does not close, including the diversion of management and employee attention, potential employee attrition and the potential effect on business and customer relationships;

•

the fact that our stockholders will not participate in any of our future earnings or growth and will not benefit from any appreciation in our value;

•

the restrictions on the conduct of our business prior to the completion of the merger, requiring us to conduct our business only in the ordinary course, subject to specific limitations, which may delay or prevent us from undertaking business opportunities that may arise pending completion of the merger;

•

the fact that BBIL is a non-U.S. entity and the potential risk that governmental entities whose approvals must be obtained may be more rigorous in their review process than they would with a U.S. buyer;

 

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•

the fact that BBIL would be required to raise a substantial portion of the merger consideration in the capital markets and the risks related to those markets;

•

the interests of our executive officers and directors in the merger (see “Interests of Certain of Our Directors and Officers”);

•

the fact that we do not have the ability to seek specific performance by BBIL of its obligations contained in the merger agreement; and

•

the restrictions on our ability to solicit or engage in discussions or negotiations with a third party regarding specific transactions involving us, and the requirement that we pay BBIL a $50 million termination fee in order for the board of directors to accept a superior proposal.

In the course of reaching its decision to approve the merger agreement, our board of directors did not consider the liquidation value of our assets because it considers us to be a viable going concern business and views the trading history of our common stock as an indication of its value as such. Our board of directors believes that the liquidation value would be significantly lower than our value as a viable going concern and that, due to the fact that we are being sold as a going concern, our liquidation value is irrelevant to a determination as to whether the merger is fair to us and our stockholders. Further, our board of directors did not consider net book value, which is an accounting concept, as a factor because it believed that net book value is not a material indicator of our value as a going concern but rather is indicative of historical costs. Our net book value per outstanding share as of March 31, 2006 was $21.11. This value is substantially below the $37.00 per share cash merger consideration.

The foregoing discussion summarizes the material factors considered by our board of directors in its consideration of the merger. After considering these factors, the board of directors concluded that the positive factors relating to the merger agreement and the merger outweighed the negative factors. In view of the wide variety of factors considered by our board of directors, our board of directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of our board of directors may have assigned different weights to various factors.

 Opinion of Credit Suisse Securities (USA) LLC

Credit Suisse was engaged by us to provide financial advice in connection with our consideration of potential transactions, including a possible sale of our company. We engaged Credit Suisse as our financial advisor based on Credit Suisse’s experience and reputation and its familiarity with us and our business. Credit Suisse is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes.

Credit Suisse has rendered its written opinion, dated April 25, 2006, to our board of directors to the effect that, as of that date and based upon and subject to the assumptions, qualifications, limitations and other matters described in its opinion, the consideration to be received by the holders of our common stock in the merger was fair, from a financial point of view, to the holders of our common stock.

The full text of Credit Suisse’s written opinion, dated April 25, 2006, to our board of directors, which sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered is included as Annex B to this proxy statement. The summary of Credit Suisse’s opinion in this proxy statement is qualified in its entirety by reference to the full text of the opinion, which is incorporated by reference. Holders of our common stock are encouraged to carefully read the opinion in its entirety.

 

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Procedures Followed

In arriving at its opinion, Credit Suisse:

•

reviewed the Merger Agreement;

•

reviewed certain publicly available business and financial information relating to our company;

•

reviewed certain other information relating to our company, including financial forecasts, provided to or discussed with Credit Suisse by us;

•

met with our management to discuss the business and prospects of our company;

•

considered certain of our financial and stock market data and compared that data with similar data for other publicly held companies in businesses deemed similar to that of our company;

•

considered, to the extent publicly available, the financial terms of certain other business combinations and other transactions which have been recently effected or announced; and

•

considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which it deemed relevant.

Assumptions Made and Qualifications and Limitations on Review Undertaken

In connection with its review, Credit Suisse did not assume any responsibility for independent verification of any of the information it reviewed or considered and relied upon such information being complete and accurate in all material respects. With respect to our financial forecasts reviewed by Credit Suisse, Credit Suisse was advised and assumed that such forecasts were reasonably prepared on bases reflecting the best currently available estimates and judgments of our management as to the future financial performance of our company. Credit Suisse also assumed, with our consent, that, in the course of obtaining any regulatory or third party consents, approvals or agreements in connection with the merger, no material delay, limitation, restriction or condition would be imposed on the merger and that the merger would be consummated in accordance with the terms of the merger agreement without waiver, modification or amendment of any material term, condition or agreement thereof.

Credit Suisse was not requested to make, and did not make, an independent evaluation or appraisal of the assets or liabilities, contingent or otherwise, of our company, nor was Credit Suisse furnished with any such evaluations or appraisals. Credit Suisse’s opinion addresses only the fairness, from a financial point of view, to the holders of our common stock of the consideration to be received by holders of our common stock in the merger and does not address any other aspect or implication of the merger or any other agreement, arrangement or understanding entered into in connection with the merger or otherwise. Credit Suisse’s opinion is necessarily based upon information made available to it as of the date of its opinion and financial, economic, market and other conditions as they existed and could be evaluated on the date of the opinion. Credit Suisse’s opinion does not address the merits of the merger as compared to alternative transactions or strategies that may be available to us nor does it address our underlying decision to proceed with the merger. Credit Suisse’s opinion also does not constitute a recommendation to any stockholder of our company as to how such stockholder should vote or act on any matter relating to the proposed merger.

Summary of Financial Analyses

In preparing its opinion to our board of directors, Credit Suisse performed a variety of financial analyses, including those described below. The summary of Credit Suisse’s financial analyses described below is not a complete description of the analyses underlying Credit Suisse’s opinion. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaptation and application of those analytic methods to the unique facts and circumstances presented. As a consequence, neither a fairness opinion nor its underlying analyses is readily susceptible to partial

 

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analysis or summary description. Credit Suisse arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analytic method or factor. Accordingly, Credit Suisse believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion.

In performing its analyses, Credit Suisse considered general business, economic, industry and market performance and conditions, financial and otherwise, and other matters. No company, transaction or business used in Credit Suisse’s analyses as a comparison is identical to our company or the proposed merger, and while the results of each analysis are taken into account in reaching its overall conclusion with respect to fairness, Credit Suisse does not make separate or quantifiable judgments regarding individual analyses. The estimates contained in Credit Suisse’s analyses and ranges of values indicated by any particular analysis are illustrative and not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond our control and the control of Credit Suisse. Accordingly, much of the information used in, and the results of, Credit Suisse’s analyses are inherently subject to substantial uncertainty.

Credit Suisse’s opinion and financial analyses were provided to our board of directors in connection with its consideration of the proposed merger and were only one of many factors considered by our board of directors in evaluating the proposed merger. Neither Credit Suisse’s opinion nor its analyses were determinative of the merger consideration or of the views of our board of directors or management with respect to the merger.

The following is a summary of the material financial analyses Credit Suisse discussed with our board of directors in connection with the rendering of Credit Suisse’s opinion on April 25, 2006. The financial analyses summarized below include information presented in tabular format. In order to fully understand Credit Suisse’s analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, as well as the methodologies underlying and the assumptions, qualifications and limitations affecting each analysis, could create a misleading or incomplete view of Credit Suisse’s analyses.

Credit Suisse calculated enterprise values based on the value of the relevant company’s outstanding equity securities (taking into account its outstanding warrants and other convertible securities) plus the value of its net debt (the value of its outstanding indebtedness, preferred stock and capital lease obligations less the amount of unrestricted cash on its balance sheet). Unless the context indicates otherwise, enterprise and per share equity values used in the analyses described below were calculated using the closing price of our common stock and the selected utility companies listed below as of April 21, 2006, and the transaction values, as of the announcement date, for the companies being acquired in the selected transactions listed below. Estimates of 2006 and 2007 earnings before interest, taxes, depreciation, and amortization, or EBITDA, earnings before interest and taxes, EBIT, and Net Income for our company were based on estimates provided by our management, and were adjusted to exclude certain projected revenues from securitizations. For consistency, our net debt was adjusted to exclude certain securitization bonds. Estimates of 2006 and 2007 EBITDA and EBIT for the selected electric utility companies listed below were based on publicly available research analyst estimates for those companies. Equity values for our company indicated by the analyses summarized below incorporated our management’s expectations with respect to our utilization of net operating losses, or NOLs. For the purposes of its analyses, Credit Suisse assumed, based on information provided by our management, that our company had approximately $468 million of NOLs as of March 31, 2006. Based on our management's estimates with respect to our company's ability to utilize the NOLs, Credit Suisse estimated the net present value of our company's NOLs was approximately $115 million.

 

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Selected Companies Analysis. Credit Suisse calculated multiples of enterprise value and per share equity value to certain financial data for our company and selected electric utility companies primarily engaged in the transmission and distribution of electricity as well as integrated regional electric utility companies.

Those multiples included:

•

Enterprise value as a multiple of estimated 2006 EBITDA;

•

Enterprise value as a multiple of estimated 2007 EBITDA;

•

Enterprise value as a multiple of estimated 2006 EBIT;

•

Enterprise value as a multiple of estimated 2007 EBIT;

•

Per share equity value as a multiple of estimated 2006 Net Income per share; and

•

Per share equity value as a multiple of estimated 2007 Net Income per share.

The selected transmission and distribution electric utility companies were:

•

Northeast Utilities

•

NSTAR

•

Energy East Corporation

•

Pepco Holdings, Inc.

•

Duquesne Light Holdings, Inc.

The selected integrated regional electric utility companies were:

•

ALLETE, Inc.

•

Avista Corporation

•

Black Hills Corporation

•

IDACORP, Inc.

•

Puget Energy, Inc.

•

Alliant Energy Corporation

Credit Suisse’s analysis of the selected companies indicated the following:

Multiple Description		High		Low		Mean		Median
Enterprise Value as multiple of:
2006E EBITDA		9.9x		6.3x		7.9x		8.0x
2007E EBITDA		9.0x		6.0x		7.3x		7.3x
2006E EBIT		15.0x		10.5x		11.9x		11.7x
2007E EBIT		12.8x		10.0x		10.8x		10.7x
Per Share Equity Value as a multiple of:
2006E Net Income per share		17.2x		12.8x		15.4x		15.1x
2007E Net Income per share		16.2x		11.6x		13.8x		13.6x

 

Credit Suisse applied the multiple ranges based on the selected companies analysis to corresponding financial data for our company, including estimates provided by our management. That analysis indicated an implied reference range value per share of our common stock of $29.01 to $34.56, as compared to the proposed merger consideration of $37.00 per share of our common stock.

 

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Selected Transactions Analysis. Credit Suisse calculated multiples of enterprise value and per share equity value to certain financial data based on the purchase prices paid in selected electric utility transactions.

Those multiples included:

•

Enterprise value as a multiple of latest 12 months, or LTM, EBITDA;

•

Enterprise value as a multiple of LTM EBIT;

•

Per share equity value as a multiple of LTM Net Income; and

•

Per share equity value as a multiple of Book Value.

The selected electric utility transactions were:

Acquirer		Target
FPL Group Inc.		Constellation Energy Group Inc.
Mid-Kansas Electric Company LLC		Aquila, Inc.
MidAmerican Energy Holdings Co.		Pacificorp
Duke Energy Corp.		Cinergy Corp.
Exelon Corp.		Public Service Enterprise Group Inc
PNM Resources Inc.		TNP Enterprises, Inc.
Ameren Corp.		Illinois Power Company
Fortis Inc.		Aquila Networks Canada
Ameren Corp.		CILCORP, Inc.
Energy East Corp.		RGS Energy Group Inc.
Pepco Holdings, Inc.		Conectiv Inc.
NorthWestern Corporation		The Montana Power Company
National Grid plc		Niagara Mohawk Holdings, Inc.
FirstEnergy Corp.		GPU, Inc.
AES Incorporated		IPALCO Enterprises
Energy East Corporation		CMP Group
Indiana Energy		SIGCORP
Dynegy Inc.		Illinova
BEC Energy		Commonwealth Energy System
AES Corp.		CILCORP Inc.
Consolidated Edison Inc.		Orange & Rockland Utilities, Inc.

 

Credit Suisse’s analysis of the selected transactions indicated the following:

Multiple Description		High		Low		Mean		Median
Enterprise Value as multiple of:
LTM EBITDA		9.8x		7.0x		8.2x		8.0x
LTM EBIT		19.0x		9.6x		13.2x		12.9x
Per Share Equity Value as a multiple of:
LTM Net Income		34.7x		10.4x		18.9x		18.2x
Book Value		3.5x		1.0x		1.8x		1.8x

 

 

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Credit Suisse applied multiple ranges based on the selected transactions analysis to corresponding financial data for us. That analysis indicated an implied reference range value per share of our common stock of $32.09 to $40.74, as compared to the proposed merger consideration of $37.00 per share of our common stock.

Discounted Cash Flow Analysis. Credit Suisse also calculated the present value of our unlevered, after-tax free cash flows based on projections provided by our management. For purposes of this analysis, Credit Suisse considered two cases, a base management case and a growth management case. The latter incorporated our management’s views regarding the potential financial impact of contemplated projects to build new and expand the capacity of existing transmission lines. In performing this analysis, Credit Suisse used discount rates ranging from 7.5% to 8.5% based on our weighted average cost of capital and terminal value multiples ranging from 7.5x to 9.0x based on LTM EBITDA multiples from the selected companies analyses. The discounted cash flow analyses indicated an implied reference range value per share of our common stock of $30.00 to $39.15 for the base management case and $28.99 to $41.66 for the growth management case, as compared to the proposed merger consideration of $37.00 per share of our common stock.

General

Credit Suisse initially performed work for us as a financial advisor pursuant to a letter agreement dated August 1, 2005. In a subsequent engagement letter dated December 5, 2005, Credit Suisse agreed, among other things, to act as our financial advisor with respect to our company’s review of strategic and financial planning matters and any potential transactions, including a possible sale of the company. Later, Credit Suisse’s engagement by our company was further amended and restated in a letter agreement dated April 10, 2006 to, among other things, reduce the transaction fee payable to Credit Suisse at transaction prices below certain transaction price levels and increase the fee payable to Credit Suisse above certain transaction price levels.

Pursuant to the terms of its engagement, we will pay Credit Suisse a fee, estimated as of the date of this proxy statement to be approximately $17.2 million for services rendered to us in connection with the merger, approximately 25% of which became payable upon Credit Suisse rendering its opinion (regardless of the conclusion reached therein), 25% of which will become payable upon our receipt of shareholder approval of the merger agreement, and the balance of which will become payable upon the consummation of the proposed merger. We have also agreed to reimburse Credit Suisse for its expenses and to indemnify Credit Suisse and certain related parties against liabilities, including liabilities under the federal securities laws, arising out of Credit Suisse’s engagement. Credit Suisse and its affiliates have from time-to-time in the past provided, are currently providing, and in the future may provide, investment banking and other financial services to us, BBIL or their respective affiliates, for which services Credit Suisse has received, and would expect to receive, compensation.

Since January 1, 2004, Credit Suisse and its affiliates have from time to time provided other investment banking and financial services to us, including having acted as a joint bookrunning initial purchaser with respect to the Rule 144A offering of $225,000,000 principal amount of our 5.875% Senior Secured Notes due 2014; as administrative agent for and a participating lender under our prior senior secured credit facility; as a participating lender under our existing credit facility; and as agent for our share repurchase program. For the foregoing services, we have paid Credit Suisse and its affiliates fees totaling approximately $1.9 million, excluding interest expenses, commitment fees, and amendment fees related to our credit facilities.

Credit Suisse is a full service securities firm engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. In the ordinary course of business, Credit Suisse and its affiliates may acquire, hold or sell, for its and its affiliates own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of our company, BBIL, their respective affiliates and any other company that may be involved in the merger, as well as provide investment banking and other financial services to such companies.

  

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Opinion of The Blackstone Group L.P.

Blackstone has acted as financial advisor to us in connection with the merger. We selected Blackstone based on Blackstone’s experience, reputation and familiarity with our business. Blackstone is an internationally recognized investment banking firm and is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts and valuations for corporate and other purposes.

In connection with Blackstone’s engagement, we requested that Blackstone evaluate the fairness, from a financial point of view, of the consideration to be received pursuant to the merger agreement by the holders of our common stock. On April 25, 2006, at a meeting of our board of directors, Blackstone delivered to our board its opinion to the effect that, as of that date and based on and subject to the matters described in its opinion, the merger consideration to be received by the holders of our common stock is fair to such holders from a financial point of view.

The full text of Blackstone’s written opinion, dated April 25, 2006, to the board of directors, which sets forth the procedures followed, assumptions made, matters considered and limitations on the review undertaken, is included as Annex C to this proxy statement and is incorporated herein by reference. Holders of our common stock are encouraged to read this opinion carefully and in its entirety. Blackstone’s opinion was provided to the board of directors in connection with its evaluation of the merger consideration and relates only to the fairness, from a financial point of view, of the merger consideration, does not address any other aspect of the proposed merger and does not constitute a recommendation to any stockholder of our company as to how such stockholder should vote on the merger. The summary of Blackstone’s opinion in this Proxy Statement is qualified in its entirety by reference to the full text of the opinion.

In arriving at its opinion, Blackstone, among other things:

•

reviewed certain publicly available information concerning the business, financial condition, and operations of our company that Blackstone believes to be relevant to its inquiry;

•

reviewed certain internal financial information, prepared and furnished to Blackstone by our management, concerning our business, financial condition, and operations that Blackstone believes to be relevant to its inquiry;

•

reviewed certain estimates and forecasts relating to our business and financial prospects, prepared and furnished to Blackstone by our management;

•

reviewed our budget for the year ending December 31, 2006, prepared and furnished to Blackstone by our management;

•

reviewed our audited financial statements;

•

held discussions with members of our management concerning our business, operating and regulatory environment, financial condition, prospects, and strategic objectives;

•

reviewed the historical market prices and trading activity for our common stock;

•

compared certain financial information for us with similar information for certain other utility companies, the securities of which are publicly traded;

•

to the extent publicly available, compared the proposed financial terms of the merger with the financial terms of certain other transactions that Blackstone deemed relevant;

•

performed a discounted cash flow analysis on the financial projections of our company;

•

reviewed the draft merger agreement, dated April 22, 2006; and

•

performed such other financial studies, investigations and analyses, and considered such other matters as Blackstone deemed necessary or appropriate.

 

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In preparing its opinion, Blackstone relied, without independent verification, upon the accuracy and completeness of all financial and other information reviewed by Blackstone that was publicly available, that was supplied or otherwise made available to Blackstone by us or was otherwise reviewed by Blackstone. Blackstone assumed that the financial and other projections prepared by us, and the assumptions underlying those projections, including the amounts and the timing of all financial and other performance data, were reasonably prepared in accordance with industry practice and represent management’s reasonable estimates as of the date of their preparation. Blackstone did not assume any responsibility for and express any opinion as to such forecasts or projections or the assumptions on which they were based. Blackstone further relied upon the assurances of our management that they are not aware of any facts that would make the information and projections provided by them inaccurate, incomplete or misleading. Blackstone also assumed, with the consent of our board of directors, that the final executed form of the merger agreement did not differ in any material respect from the draft dated April 22, 2006, and that we and BBIL will comply with all the terms of the merger agreement without waiver, modification or amendment in any material respect.

While Blackstone reviewed our historical and projected financial results, Blackstone did not make an independent evaluation or appraisal of our assets and liabilities. Blackstone also did not conduct a physical inspection of our properties and facilities. Blackstone did not consider in reaching the conclusions set forth in its opinion the relative merits of the merger as compared to any other business plan or opportunity that might be available to us or the effect of any other arrangement in which we might engage, except that Blackstone was aware of discussions that we had over the previous six months with other potential transaction partners. Furthermore, Blackstone did not express any opinion as to the prices or trading ranges at which our common stock will trade at any time.

Blackstone assumed that the merger will be consummated on substantially the terms set forth in the merger agreement. Blackstone assumed, with the permission of our management, that in the course of obtaining the necessary regulatory or other consents or approvals (contractual or otherwise) for the merger, no material restrictions or requirements will be imposed that will have a material adverse effect on the contemplated benefits of the merger. Blackstone’s opinion is necessarily based upon economic, market, monetary, regulatory and other conditions as they exist and can be evaluated, and the information made available to Blackstone, as of the date of the opinion. It should be understood that Blackstone does not have any obligation to update, revise or reaffirm its opinion based on circumstances or events occurring after the date hereof.

In preparing its opinion to our board of directors, Blackstone performed a variety of financial and comparative analyses, including those described below. The preparation of a fairness opinion is complex and is not readily susceptible to partial analysis or summary description. Accordingly, Blackstone believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors, or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion. Blackstone did not assign relative weights to any of its analyses in preparing its opinion.

No company, transaction or business used in Blackstone’s analyses as a comparison is directly comparable to us, BBIL or the proposed merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning differences in financial and operating characteristics of the comparable companies, business segments or transactions and other factors that could affect the merger or the other values of the companies, business segments or transactions being analyzed.

The estimates contained in Blackstone’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. The analyses do not purport to be appraisals and do not necessarily reflect the prices at which businesses actually may be sold, and such estimates are inherently subject to uncertainty.

 

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Blackstone’s opinion and financial analyses were among many factors considered by our board of directors in its evaluation of the proposed merger and should not be viewed as determinative of the views of our board of directors or our management or BBIL with respect to the merger or the consideration to be received by the holders of our common stock pursuant to the merger.

The $37.00 per share merger consideration was determined through arms-length negotiations between our company and BBIL and was approved by our board of directors. Blackstone did not recommend any specific amount of consideration to us or our board of directors or that any specific amount of consideration constituted the only appropriate consideration for the merger.

Summary of Financial Analyses

The following is a summary of the material financial analyses underlying Blackstone’s opinion dated April 25, 2006, delivered to our board of directors in connection with the merger. The financial analyses summarized below include information presented in tabular format. In order to fully understand Blackstone’s financial analyses, the tables must be read together with the text of each summary. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Blackstone’s financial analyses.

Predictions of results of operations, cash flows, EBITDA and per share values for 2006 and subsequent years set forth in the following analyses are not guaranteed, involve risks and uncertainties and may not accurately predict future results of the combined company. These predictions may be affected by the various factors described above in the section entitled “Forward-Looking Information” beginning on page 16.

Historical Trading Studies. Blackstone reviewed certain historical stock price information for our company. This review indicated that for the 52-week period ended April 21, 2006, our shares of common stock had traded in a range between $27.44 and $32.88, the one-month average per share closing price of the common stock was $31.16 and the six-month average per share closing price of the common stock was $31.12. In addition, the closing price on June 23, 2005, one week prior to our disclosure that Montana Public Power Inc. had submitted a bid for us, was $28.60. Blackstone compared these prices and ranges to the merger consideration of $37.00 per share and calculated for our board of directors various premiums based on the merger consideration. The following table presents the results of Blackstone’s calculations:

Premium Analysis		Stock Price		Merger Premium
As of April 21, 2006		$31.81		16.3%
As of June 23, 2005 (1)		$28.60		29.4%
1-Month Average		$31.16		18.7%
6-Month Average		$31.12		18.9%
52-Week High		$32.88		12.5%
52-Week Low		$27.44		34.8%

__________________

(1)  One week prior to our announcement of Montana Public Power’s bid for our company.

 

Comparable publicly traded company analysis. Blackstone analyzed our market values and trading multiples and those of selected publicly traded utility companies that Blackstone believed were reasonably comparable to us. There are no publicly traded comparable companies which are identical to us due to our diverse operations. In selecting comparable companies for this analysis, Blackstone considered, among other

 

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factors, business mix, industry, size and performance of publicly traded comparable companies. These comparable companies consisted of:

•

Alliant Energy Corporation

•

Black Hills Corporation

•

Energy East Corporation

•

IDACORP, Inc.

•

OGE Energy Corp.

•

Pepco Holdings, Inc.

•

Puget Energy Inc.

•

Westar Energy Inc.

In examining these comparable companies, Blackstone calculated:

•

the enterprise value of each company as a multiple of its respective LTM, estimated calendar year 2006 and estimated calendar year 2007 EBITDA;

•

the enterprise value of each company as a multiple of its respective LTM and estimated calendar year 2006 EBIT; and

•

the equity value of each company as a multiple of its respective estimated calendar year 2006 and estimated calendar year 2007 net income.

Blackstone also calculated our stock price as of April 21, 2006, divided by estimated calendar year 2006 and 2007 earnings per share, or EPS, and divided by book value of the equity of our company, or its Price/Book ratio. The enterprise value of a company is equal to the value of its fully diluted common equity plus debt and the liquidation value of outstanding convertible preferred stock, if any, minus cash and the value of certain other assets, including minority interests in other entities. The equity value of a company is equal to the value of its fully diluted common equity. Except as otherwise noted herein, all historical data was derived from publicly available sources, and all projected data was obtained from Wall Street research reports. In addition to calculating these multiples with respect to our stock price on April 21, 2006, Blackstone calculated these multiples with respect to our stock price as of June 23, 2005, one week prior to the announcement that Montana Public Power Inc. had submitted a bid for us. Blackstone’s analysis of the comparable companies yielded the following:

Multiple Description		Company (1)		Company (undisturbed) (2)		Mean (3)		Median (3)
Enterprise Value as multiple of:
LTM EBITDA		8.2x		7.6x		7.9x		7.8x
CY 2006E EBITDA		8.0x		7.4x		7.5x		7.3x
CY 2007E EBITDA		7.2x		6.7x		7.0x		6.9x
LTM EBIT		12.2x		11.4x		13.0x		12.5x
CY 2006E EBIT		11.8x		11.0x		12.1x		11.8x
Price/EPS:
CY 2006E		17.2x		15.5x		14.8x		14.8x
CY 2007E		14.8x		13.3x		13.8x		13.6x
Price/Book		1.6x		1.4x		1.4x		1.3x

__________________

(1)

Based upon our company’s stock price as of April 21, 2006.

(2)

Based upon our company’s stock price as of June 23, 2005 (one week prior to our announcement of Montana Public Power’s bid for our company).

(3)

Mean and median exclude our company.

 

 

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Based on the foregoing, Blackstone applied the selected mean and median multiples of the financial and operating data derived from the selected comparable companies to corresponding financial data of our company in order to derive an implied enterprise value range for our company. Thereafter, Blackstone calculated a range of per share equity values by making certain adjustments, including adjustments to reflect our net debt (excluding certain securitization bonds) and the equity value of our NOLs in order to derive an implied equity reference range for us. For the purposes of its analyses, Blackstone relied on management’s estimates that, as of December 31, 2005, our company had approximately $468 million of NOLs. Based on our management’s estimates with respect to our company's ability to utilize the NOLs, Blackstone estimated the net present value of our company’s NOLs was $125 million. Blackstone then divided the amounts of the implied equity reference range for our company by the number of our fully diluted shares and then compared this implied per share equity value range against the per share merger consideration, which indicated an implied per share equity reference range for us of $30.50 to $34.00, as compared to the merger consideration of $37.00 per share.

Comparable transaction analysis. Using publicly available information, Blackstone reviewed information relating to the following selected acquisitions and announced offers to acquire, which Blackstone deemed relevant to arriving at its opinion:

Acquirer		Target
FPL Group Inc.		Constellation Energy Group Inc.
MidAmerican Energy Holdings Co.		PacifiCorp
Duke Energy Corp.		Cinergy Corp.
Exelon Corp.		Public Service Enterprise Group Inc.
PNM Resources Inc.		TNP Enterprises Inc.
Ameren Corp.		CILCORP, Inc.
Energy East Corp.		RGS Energy Group Inc.
Pepco Holdings, Inc.		Conectiv Inc.
NorthWestern Corporation		The Montana Power Company
National Grid plc		Niagara Mohawk Holdings, Inc.
PowerGen Plc		LG&E Energy Corp.
Berkshire Hathaway Inc.		MidAmerican Energy Holdings Co.
Carolina Power & Light Company		Florida Progress Corp.
CIBC Capital Partners, Laurel Hill Capital Partners, Trimaran Capital Partners		TNP Enterprises Inc.
Scottish Power plc		PacifiCorp
CalEnergy Company Inc.		MidAmerican Energy Holdings Co.
AES Incorporated		CILCORP Inc.
Consolidated Edison Inc,		Orange & Rockland Utilities, Inc.
American Electric Power Company Inc.		Central & South West Corp.
LG&E Energy Corp.		KU Energy Corp.
Western Resources Inc.		Kansas City Power & Light Co.

Blackstone compared enterprise values in the selected transactions as multiples of LTM EBITDA and EBIT, and price as multiples of current fiscal year (CFY) and estimated next fiscal year (NFY) net income. Multiples for the selected transactions were based on publicly available financial information at the time of the announcement of the relevant transaction. Blackstone’s analysis of the selected transactions yielded the following:

 

 

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Multiple Description		Mean		Median
Enterprise Value as multiple of:
LTM EBITDA		8.4x		8.4x
LTM EBIT		13.1x		12.8x
Price as Multiple of:
CFY Net Income		17.5x		16.7x
NFY Net Income		16.1x		16.2x

Blackstone believed that a purely quantitative comparable transaction analysis would not be particularly meaningful in the context of the proposed merger because the reasons for and the circumstances surrounding each of the transactions analyzed were so diverse and because of the inherent differences in our businesses, operations, financial condition and prospects and the businesses, operations and financial condition of the companies included in the comparable transaction analysis. Blackstone believed that the appropriate use of a comparable transaction analysis in this instance involves qualitative judgments concerning the differences between the characteristics of these transactions and the proposed merger.

Based on the foregoing, Blackstone applied the selected mean and median multiples of the financial and operating data derived from the selected transactions to our corresponding financial data in order to derive an implied enterprise value range for us. Thereafter, Blackstone calculated a range of per share equity values by making certain adjustments, including adjustments to reflect our net debt (excluding certain securitization bonds) and NOLs (as described above), in order to derive an implied equity reference range for us, and then divided those amounts by the number of our fully diluted shares. Blackstone then compared this implied per share equity value range against the per share merger consideration, which indicated an implied per share equity reference range for us of $33.50 to $37.00, as compared to the merger consideration of $37.00 per share.

Discounted cash flow analysis. Blackstone performed a discounted cash flow, or DCF, analysis of our projected unlevered free cash flows for the fiscal years ending December 2006 through December 2010, using a valuation of our company as of the end of the fiscal quarter ending March 2006 and projections and assumptions provided by the management of NorthWestern. The DCF of our company was estimated using discount rates ranging from 6.75% to 7.25%, based on then current estimates related to the weighted average costs of capital of our company and risk assessment of projections, and terminal multiples of estimated EBITDA for our fiscal year ending December 2010 ranging from 7.5x to 8.0x. Based on this analysis, Blackstone estimated an implied equity value of our company, which was adjusted to reflect certain adjustments including our net debt (excluding certain securitization bonds) and NOLs (as described above), and then divided those amounts by the number of our fully diluted shares. Blackstone then compared this implied per share adjusted equity value range against the per share merger consideration, which indicated an implied per share adjusted equity reference range for our company of $32.00 to $36.75, as compared to the merger consideration of $37.00 per share.

Fee Arrangements

Blackstone has acted as financial advisor to us with respect to the merger and will receive a fee of $1 million for its services. The fee was not contingent on the conclusions reached in the opinion or completion of the merger. In addition, we have agreed to reimburse Blackstone for its out-of-pocket expenses and to indemnify Blackstone for certain liabilities arising out of the performance of such services (including, the rendering of Blackstone’s opinion). Prior to its engagement, since January 1, 2004, Blackstone had not provided any advisory services to us or our affiliates in connection with any strategic transaction and had not managed any financing transactions for us or our affiliates.

  

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Certain Effects of the Merger

The merger will terminate all equity interests in our company held by our current stockholders, and BBIL will be the sole owner of our company and our business. Upon completion of the merger, we will remove our common stock from listing on the Nasdaq National Market, and our common stock will no longer be publicly traded.

In the event that the merger agreement is not adopted by our stockholders or if the merger is not completed for any other reason, our stockholders will not receive any payment for their shares in connection with the merger. Instead, we will remain an independent public company and our common stock will continue to be listed and traded on the Nasdaq National Market. In addition, if the merger is not completed, we expect that management will operate the business in a manner similar to that in which it is being operated today and that our stockholders will continue to be subject to the same risks and opportunities as they currently are, including, among other things, general industry, economic and market conditions. Accordingly, if the merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of our common stock.

In the event the merger is not completed, our board of directors will continue to evaluate and review our business operations, properties, dividend policy and capitalization, among other things, and make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to maximize stockholder value. If the merger agreement is not adopted by our stockholders or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to us will be offered, or that our business, prospects or results of operations will not be adversely impacted.

 Dividends

We pay dividends on our common stock after our board of directors declares them. Our board of directors reviews the dividend quarterly and establishes the dividend rate based upon such factors as our earnings, financial condition, capital requirements, debt covenant requirements and/or other relevant conditions. Although we expect to continue to declare and pay cash dividends on our common stock in the future, we cannot assure that dividends will be paid in the future or that, if paid, the dividends will be paid in the same amount as we have previously.

Pursuant to the merger agreement, we may continue to declare and pay regular cash dividends per share of our common stock, not to exceed $0.31 per quarter up to and including the third quarter of 2006 and, thereafter, not to exceed $0.34 per quarter, in each case, with usual record and payment dates for such dividends in accordance with past dividend practice. In addition, we may declare and pay a supplemental dividend on our common stock on a quarterly basis for the period commencing on the 18-month anniversary of the date of the merger agreement through the effective time of the merger. Finally, we may declare and pay a special cash dividend on our common stock with a record date in the fiscal quarter in which the effective time occurs based on the amount of the regular cash dividend declared in the immediately preceding fiscal quarter and pro-rated for the time elapsed in the fiscal quarter in which the merger is consummated.

 Interests of Our Directors and Executive Officers in the Merger

In considering the recommendation of our board of directors to vote for the proposal to adopt the merger agreement, you should be aware that some of our directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally. These interests may present them with actual or potential conflicts of interest, and these interests, to the extent material, are described below. Our board of directors was aware of these interests and considered them, among other matters, during its deliberations of the merits of the merger agreement and in determining to recommend to our stockholders that they vote to adopt the merger agreement.

 

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Treatment of Restricted Stock and Deferred Stock Units

As of the record date, there were approximately 73,130 shares of our common stock represented by unvested restricted stock and deferred stock units held by our current executive officers and directors under our equity incentive plans. Under the terms of the merger agreement, all such shares of restricted common stock will become immediately vested and free of restrictions effective as of the completion of the merger. At the effective time of the merger, each share of restricted common stock that is then outstanding will be cancelled, and the holder of each such share of restricted stock will receive a cash payment of $37.00 per share of restricted common stock, without interest and less any required withholding taxes. At the effective time of the merger, each deferred stock unit that is then outstanding will be converted into the right to receive a cash payment of $37.00 per deferred stock unit, payable as provided under our 2005 Deferred Compensation Plan for Nonemployee Directors, without interest and less any required withholding taxes.

Approximately 250,000 additional shares remain available for grants to our executive officers and directors under our 2005 Long Term Incentive Plan. Pursuant to the merger agreement, our board may grant, either before or after our annual meeting, such additional shares to our directors and executive officers in accordance with such plan. As of the date of this proxy statement, our board has not made any determination in connection with these shares.

The following table summarizes the unvested restricted stock and deferred stock units held by our executive offers and directors as of June 5, 2006, and the consideration that each of them will receive pursuant to the merger agreement in connection with the cancellation of the unvested restricted stock and deferred stock units.

		No. of Shares of Restricted Stock and Deferred Stock Units			Resulting Consideration
Directors:
Stephen P. Adik			6,560			$242,720
E. Linn Draper, Jr.		11,565			472,905
Michael J. Hanson		14,288			528,656
Jon S. Fossel		–			–
Julia L. Johnson		9,418			348,466
Philip L. Maslowe		10,423			385,651
D. Louis Peoples		–			–
Executive Officers:
Brian B. Bird		8,576			317,312
Patrick R. Corcoran		1,440			53,280
David G. Gates		1,420			52,540
Kendall G. Kliewer		640			23,680
Thomas J. Knapp		2,120			78,440
Curtis T. Pohl		1,776			65,712
Bobbi L. Schroeppel		1,380			51,060
Bart A. Thielbar		1,776			65,712
Gregory G. A. Trandem		1,748			64,676

 

 

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Severance Agreements

Each of our executive officers, Michael J. Hanson, Brian B. Bird, Patrick R. Corcoran, David G. Gates, Kendall G. Kliewer, Thomas J. Knapp, Curtis T. Pohl, Bobbi L. Schroeppel, Bart A. Thielbar, and Gregory G.A. Trandem are participants in our Officer Severance Plan. The 2006 Officer Severance Plan provides for the payment of severance benefits in the event an officer is involuntarily terminated without “cause.” “Cause” generally is defined in the 2006 Officer Severance Plan as (i) any form of illegal conduct or gross misconduct that results in substantial damage to NorthWestern, (ii) failure to comply with our Code of Conduct, (iii) willful failure to perform duties or (iv) willful and continued conduct injurious to us. For this purpose, involuntary termination does not include a termination resulting from a participant’s death or disability. The severance benefits payable under the 2006 Officer Severance Plan include: (i) a lump-sum cash payment equal to 1 times annual base pay, (ii) a pro-rata short-term incentive bonus, (iii) reimbursement of COBRA premiums paid by the participant during the 12-month period following the participant’s termination date, and (iv) $12,000 of outplacement services during the 12-month period following the participant’s termination date.

The 2006 Officer Severance Plan also provides for change of control severance benefits in the event an eligible officer is terminated within 18 months after a change of control of NorthWestern. Change of control is generally defined in the 2006 Officer Severance Plan as (i) an acquisition of more than 50% of the combined voting power of our securities, (ii) a change in the majority of our board of directors in any 12-month period, (iii) a merger, or (iv)  the sale or disposition of all or substantially all of our assets. Under the change of control provisions, severance benefits are payable in the event an eligible officer is involuntarily terminated by us or in the event of a voluntary termination by the participant with “good reason,” within 18 months after a change of control. “Good reason” is generally defined in the 2006 Officer Severance Plan as (i) a reduction in annual compensation in excess of 15% or $10,000, whichever is greater, (ii) relocation of more than 50 miles, (iii) the failure to provide an equivalent or better position with the successor organization or (iv) the failure to obtain satisfactory agreement from the successor to assume and agree to perform the 2006 Officer Severance Plan. The change of control benefits include: (i) a lump-sum cash payment equal to 2 times Compensation to the Chief Executive Officer and Chief Financial Officer and 1.5 times Compensation to all other eligible officers (where Compensation is defined under Section 1.7 of the 2006 Officer Severance Plan as annual base salary plus target annual short-term incentive pay), (ii) a pro-rata short-term incentive bonus, (iii) reimbursement of COBRA premiums paid by the participant during the 18-month period following the participant’s termination date, and (iv) $12,000 in outplacement services during the 12-month period following the participant’s termination date.

In the event any benefits payable under the 2006 Officer Severance Plan result in an excess parachute payment under section 280G of the Internal Revenue Code of 1986, as amended, or the Code, such change of control severance benefits is limited to the greater of: (i) the largest amount which may be paid without any portion of such amount being subject to excise tax imposed by Code Section 4999, or (ii) the change of control benefits payable under the 2006 Officer Severance Plan without regard to such limitation, less any excise tax imposed under Code Section 4999.

The following table shows the amount of potential cash severance payable to our current executive officers (including the amount that such executive officer would be entitled to be reimbursed for outplacement expenses), based on an assumed termination date of December 31, 2006, which is the last day of our 2006 fiscal year. The table also shows the estimated present value of continuing coverage and other benefits under our group health, dental and life insurance plans to each such executive officer.

 

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Executive Officers:			Amount of Potential Cash Severance Payment (1)		Estimated Present Value of Benefits		Estimated Tax Gross-Up Payment (2)
Michael J. Hanson			$2,062,000		$25,200		$–
Brian B. Bird			1,020,000		25,200		–
Thomas J. Knapp			649,500		25,200		–
Gregory G. A. Trandem			512,000		25,200		–
David G. Gates			465,625		25,200		–
Curtis T. Pohl			463,250		25,200		–
Bobbi L. Schroeppel			383,250		25,200		–
Patrick R. Corcoran			372,000		7,200		–
Bart A. Thielbar			437,250		25,200		–
Kendall G. Kliewer			417,000		25,200		–
(1)  Assumes 2006 short-term incentive bonus at 100% of target; excludes the value of acceleration of vesting of equity awards, as reported separately herein.
(2)  The Officer Severance Plan does not provide tax gross up payments.

 

Indemnification and D&O Liability Insurance

Indemnification. Following the effective time of the merger, BBIL will cause the surviving corporation to indemnify and advance expenses to all of our and our subsidiaries’ past and present directors, officers, employees and agents and all other persons who may presently serve or have served at our request as a director, officer, employee or agent of another person against any costs or expenses, including reasonable attorney’s fees, judgments, amounts paid in settlement, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil or criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the effective time of the merger (including for acts or omissions occurring in connection with the approval of the merger agreement and the consummation of the merger), whether asserted or claimed prior to, at or after the effective time of the merger, to the same extent such individuals are indemnified or have the right to advancement of expenses as of the date of the merger agreement by us or our subsidiaries pursuant to their respective charter documents, or similar organizational documents, as applicable, and the indemnification agreements. For a description of the indemnification agreements you should refer to “Compensation of Directors and Executive Officers—Indemnification Agreements.”

D&O Liability Insurance. BBIL will cause the surviving corporation to maintain in effect for the period ending on the later of (i) six years and one month from the effective time and (ii) the applicable statute of limitations, an officers’ and directors’ liability insurance and fiduciary liability insurance policy for acts and omissions occurring prior to the effective time of the merger. Such policy will be from an insurance carrier with the same or better credit rating as our current insurance carrier with coverage in amount and scope at least as favorable as our existing directors’ and officers’ liability insurance and fiduciary liability insurance coverage. In lieu of the foregoing, the surviving corporation may substitute a prepaid “tail” policy for such coverage, which it may cause us to obtain prior to the closing of the merger.

If the surviving corporation later merges or consolidates with or sells all or substantially all of its assets to another entity, the entity surviving such transaction will assume these insurance obligations.

Employee Agreements and Equity Participation

As of the date of this proxy statement, no member of our board of directors or management has entered into employment agreements with us or our subsidiaries in connection with the merger. In addition, as of the date of this proxy statement, no member of our board of directors or management has

 

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entered into or is currently negotiating any agreement, arrangement or understanding with BBIL or their affiliates regarding employment with, or the right to purchase or participate in the equity of, the surviving corporation. BBIL has informed us that it is their intention to retain members of our existing management team with the surviving corporation after the merger is completed.

 Regulatory Matters

To complete the merger, our company and BBIL must obtain approvals or consents from, or make filings with a number of United States federal and state public utility, antitrust and other regulatory authorities. The material United States federal and state approvals, consents and filings are described below. We and BBIL are not currently aware of any other material governmental consents, approvals or filings that are required prior to the parties’ consummation of the merger other than those described below. If additional approvals, consents and filings are required to complete the merger, we and BBIL contemplate that such consents, approvals and filings will be sought or made.

We and BBIL will seek to consummate the merger by the first or second quarter of 2007. Although we and BBIL believe that the required consents and approvals described below to complete the merger will be received, there can be no assurance as to the timing of these consents and approvals or as to our and BBIL’s ultimate ability to obtain such consents or approvals (or any additional consents or approvals which may otherwise become necessary) or that such consents or approvals will be obtained on terms and subject to conditions satisfactory to us and BBIL.

Hart-Scott-Rodino Act

The merger is subject to the requirements of the HSR Act, and the rules and regulations promulgated thereunder, which provide that certain acquisition transactions may not be consummated until required information has been furnished to the Antitrust Division of the Department of Justice, or the DOJ, and the Federal Trade Commission, or FTC, and until certain waiting periods have been terminated or have expired. Even after the HSR Act waiting period expires or terminates, the FTC or DOJ may later challenge the transaction on antitrust grounds. Neither we nor BBIL believes that the merger will violate federal antitrust laws, but there can be no guarantee that the DOJ or the FTC will not take a different position. If the merger is not consummated within 12 months after the termination of the initial HSR Act waiting period, we and BBIL will be required to submit new information to the DOJ and the FTC, and a new HSR Act waiting period will have to expire or be earlier terminated before the merger can be consummated. We expect to file our HSR application with the DOJ and the FTC by the end of July 2006.

Federal Power Act

Section 203(a)(1) of the Federal Power Act, or FPA, provides that a public utility may not sell or otherwise dispose of its jurisdictional facilities, directly or indirectly merge or consolidate its jurisdictional facilities with those of any other person, or acquire any security of any other public utility without first having obtained authorization from the FERC. Because we own “jurisdictional facilities” under the FPA, the approval of the FERC under Section 203(a)(1) is required before we and BBIL may consummate the merger.

In addition, Section 203(a)(2) of the FPA requires prior FERC approval for a “holding company” in a holding company