Fairfax Buying California's Zenith National For $1.4 Billion

NU Online News Service, Feb.18, 11:48 a.m. EST

Toronto-based Fairfax Financial Holdings Limited will acquire workers' compensation insurer Zenith National Insurance Corp. in Woodland Hills, Calif., in a $1.4 billion cash deal, the two companies said.

Fairfax curently has an eight percent holding in the company. Under their agreement, after the purchase for $38 a share of the remaining 92 percent of the company, Zenith will continue to operate from its California headquarters and become a wholly owned Fairfax subsidiary.

The announcement said the $38 per share that Zenith stockholders will receive represents a premium of 31.4 percent from Zenith's closing stock price of $28.91 per share yesterday and a premium of 34.5 percent to Zenith's book value as of Dec. 31, 2009.

The transaction is expected to close in the second quarter of 2010.

Zenith said its board of directors determined the merger was in the best interest of the company and its shareholders and will recommend stockholder approval.

Zenith directors and executive officers, who own approximately 3.4 percent of Zenith's common stock, agreed to vote their shares in favor of the merger, the announcement said.

The transaction is subject to stockholder and regulatory approval. There is no financing condition to consummate the transaction.

Fairfax said it intends to finance the acquisition with a combination of holding company cash and subsidiary dividends, but will also raise $200 million through an equity issue prior to the closing.

Following the completion of the acquisition, Fairfax said it expects to continue to maintain approximately $1 billion in cash and marketable securities at the holding company level.

Prem Watsa, Fairfax chairman and chief executive officer, said in a statement that the acquisition reflects his company's strategy of "investing in well-managed and well-positioned insurance companies."

Mr. Watsa added that Zenith had an "outstanding long-term underwriting track record spanning over thirty years" under the leadership of its Chairman and CEO Stanley Zax.

He advised that following completion of the transaction, "there will be no changes in Zenith's strategic or operating philosophy. Zenith will continue to operate its business as it has always been run under Stanley's excellent leadership, with investment management centralized at Fairfax.

"All other Fairfax group companies will continue to operate independently on a decentralized basis."

Mr. Zax said, "We believe the transaction will benefit our key constituents and enable our shareholders to realize compelling value for their investment in Zenith. I am very proud of the employees, agents, management and directors at Zenith in creating one of the most successful specialty workers' compensation companies.

We admire Fairfax's accomplishments in creating an extremely successful insurance and reinsurance business and are delighted to become part of the Fairfax family."

Shearman & Sterling LLP is acting as legal counsel to Fairfax. Torys LLP is acting as Canadian legal counsel to Fairfax. BofA Merrill Lynch is acting as exclusive financial advisor to Zenith and Dewey & LeBoeuf LLP is acting as legal counsel to Zenith.

Fairfax is a financial services holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management.