Toronto-based Fairfax Financial Holdings Ltd. (TSX:FFH) and American Safety Insurance Holdings, Ltd. (NYSE:ASI) said Monday they have entered into a merger that will see Fairfax acquire all of the outstanding shares of American Safety common stock for US$306 million in cash.

Prem Watsa, chairman and CEO of Fairfax, said: “We look forward to working with the talented professionals in the American Safety team. We expect to enhance our insurance operations in certain specialty lines of business with American Safety’s expertise.”

Fairfax expects several of the American Safety specialty insurance lines to move to subsidiaries Crum & Forster and Hudson.

The acquisition is expected to provide the Fairfax group with US$480 million of additional investable assets.

The deal is expected to be financed using internal resources and is not expected to require Fairfax holding company cash.

American Safety stockholders will receive US$29.25 per share in cash, which represents a premium of 22.1% to the closing price of American Safety common stock on May 31, the last trading day prior to this announcement.

The transaction is expected to close in the fourth quarter of 2013, subject to approval by American Safety’s stockholders and regulatory approvals.

Fairfax has also entered into a purchase and sale agreement with Tower Group International, Ltd. in which Fairfax agreed to sell the Bermuda subsidiary, American Safety Reinsurance, Ltd. promptly upon acquiring it from American Safety.

The acquisition is expected to be financed using internal resources and is not expected to require Fairfax holding company cash.