Fairfax to Buy Rest of Northbridge for $550 Million

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Fairfax Financial Holdings said Monday it plans to spend C$686 million (US$550 million) to buy the remaining shares of Canadian property and casualty insurer Northbridge Financial that it does not already own.

Fairfax, which currently owns 30.1 million Northbridge shares, or about 63.1 percent of the company, will offer C$39 (US$31.26) a share for the rest, which is a premium of 21 percent to the stock’s closing price Friday.

Shares of Northbridge shot up 18.8 percent to C$38.30 (US$30.70) on the Toronto Stock Exchange Monday morning. The stock has traded in a range of C$25.75 (US$20.64) to C$37.40 (US$29.98) in the past year.

“I think this is a done deal, it’s an all-cash offer,” said Jeff Fenwick, an analyst at Cormark Securities.

Fairfax knows the company well, and was already managing its investment portfolio, Fenwick noted.

“It’s a way for Fairfax to deploy cash and exploit the success they’ve had from their big bets on the market,” Fenwick said.

The company had US$1.54 billion in cash at last report. Thanks to some savvy derivatives investments, Fairfax has benefited from the plunging value of financial stocks over the past year.

Fairfax said it approached the Northbridge board on Nov. 13 about its proposal to take the company private, and a special committee of Northbridge’s board subsequently determined that the deal was fair to Northbridge shareholders.

Fairfax said it expected Northbridge President and Chief Executive Mark Ram to remain in charge of the Canadian insurance operations.

Scotia Capital acted as adviser to the Northbridge special committee.

Northbridge provides property, auto, general liability and other commercial insurance coverage for Canadian businesses through its Lombard Canada, Markel Insurance Co of Canada, Commonwealth Insurance Co and Federated Insurance Co of Canada units.
Fairfax, which has insurance operations in the United States, Canada and Asia, has booked hundreds of millions of dollars worth of investment gains in recent quarters on credit default swaps that soared in value during the credit crisis.

($1=$1.24765 Canadian) (Reporting by Lynne Olver; editing by Peter Galloway)