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Fairfax Financial Holdings to Acquire Zenith National Insurance

Source: Fairfax Financial Holdings

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Posted on 18 Feb 2010

Fairfax Financial Holdings and Zenith National Insurance Corp. today announced that they have entered into a merger agreement pursuant to which Fairfax will acquire all of the outstanding shares of Zenith common stock, which it does not currently own. Zenith stockholders will receive $38.00 per share in cash, representing a premium of 31.4% to the closing price of Zenith common stock on February 17, 2010, the last trading day prior to this announcement, and a 34.0% premium to the 30-day average closing price for the period ending on February 17, 2010. The merger consideration of $38.00 per share also represents a premium of 34.5% to Zenith’s book value as of December 31, 2009. The transaction values Zenith at approximately $1.4 billion.

The transaction is expected to close in the second quarter of 2010. Following the closing, Zenith will continue to operate from its Woodland Hills, CA headquarters and will become a wholly owned subsidiary of Fairfax.

The board of directors of Zenith, after unanimously determining that the merger is in the best interest of Zenith and its stockholders, unanimously approved the merger agreement and resolved to recommend that Zenith’s stockholders vote to approve the merger. All of the directors and executive officers of Zenith, who in the aggregate beneficially own approximately 3.4 % of the outstanding shares of Zenith common stock, have agreed to vote their shares in favor of the merger.

The transaction is subject to customary conditions, including approval by Zenith’s stockholders and regulatory approval. There is no financing condition to consummate the transaction. Fairfax 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 expects to continue to maintain approximately $1.0 billion in cash and marketable securities at the holding company level.

Prem Watsa, Chairman and Chief Executive Officer of Fairfax, said: “We are very pleased to announce this transaction and look forward to working together with Zenith and its Chairman and Chief Executive Officer, Stanley Zax, to complete the merger as soon as possible. Our agreement to acquire Zenith reflects our strategy of investing in well-managed and well-positioned insurance companies.” Mr. Watsa added, “Zenith has an outstanding long-term underwriting track record spanning over thirty years under Stanley’s leadership. Following the successful 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.”

Stanley Zax, Zenith’s Chairman and Chief Executive Officer, stated: “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.


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