Fairfax Financial has entered into a merger agreement with Zenith National Insurance to acquire all of outstanding shares of Zenith common stock, which it does not currently own in the transaction valued approximately $1.4bn.

According to Fairfax, the transaction is subject to customary conditions, including approval by Zenith’s stockholders and regulatory approval. On completion of the acquisition, the company expects to continue to maintain approximately $1.0bn in cash and marketable securities at the holding company level.

Prem Watsa, chairman and CEO 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. 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.”

Stanley Zax, chairman and CEO of Zenith, said: “We believe the transaction will benefit our key constituents and enable our shareholders to realize compelling value for their investment in Zenith. We admire Fairfax’s accomplishments in creating an extremely successful insurance and reinsurance business and are delighted to become part of the Fairfax family.”

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