Canada’s Fairfax Financial to buy U.S.-based insurer Zenith National in $1.4B deal

Fairfax Financial to buy Zenith National Insurer

TORONTO — Canadian financial services holding company Fairfax Financial Holdings Ltd. said Thursday that it will buy all the shares of U.S. insurer Zenith National Insurance Corp. in a deal that values the company at about $1.4 billion.

Toronto-based Fairfax, which currently holds about 8 percent of Zenith, said it is offering $38 per share for the remaining stock in the California-based company.

The deal is expected to close in the second quarter of this year. Directors and officers of Zenith holding about 3.4 percent of its stock have agreed to tender their shares to the Fairfax offer.

“Our agreement to acquire Zenith reflects our strategy of investing in well-managed and well-positioned insurance companies,” Fairfax CEO Prem Watsa said in a statement.

The offer represents a premium of 31.4 percent above Zenith’s closing price on Wednesday, which was $37.77.

Zenith operates the Zenith Insurance Company and ZNAT Insurance businesses nationally in the United States, primarily in the field of workers’ compensation insurance. The company will become a subsidiary of Fairfax and continue to operate from its current headquarters in Woodland Hills, Calif.

Zenith reported last month a fourth-quarter profit of $10.8 million, up from a year-earlier $8.4 million, though its full-year profit tumbled to $34.4 million from $95.3 million in 2008 as increased unemployment and declining payrolls in the U.S. took a 24 percent bite out of net premiums earned.

Fairfax said it plans to finance the acquisition with cash and subsidiary dividends, but will also raise $200 million through an equity issue. After it closes, the company said it expects to keep about $1 billion in cash and marketable securities in holding company coffers.