Funtastic just bought a bit of Toys R Us in a $33m recapitalisation plan

Toy wholesaler Funtastic (ASX:FUN) has revealed its plans to recapitalise involving buying the Australian operations of Toys R Us.

Funtastic is raising nearly $33 million to buy hobby store Hobby Warehouse.

Hobby Warehouse owns the license to operate the Toys ‘R’ US brand in Australia. But it is an online hobby shop in its own right and has over 1 million subscribers.

It sells not only kids toys but stuff for teen and adult hobbies too, including sports gear, painting tools and electronics.

Hobby Warehouse’s founder and current CEO, Louis Mittoni, will take the reins as managing director of the combined group.

The deal will also involve extinguishment of Funtastic’s $6m debt to shareholder Jaszac Investment.

‘We will build a formidable company’

Funtastic has struggled financially for a few years now but it told shareholders the deal would return it to profitability. The revenue of the combined group would have been $53.2 million in FY20.

Once the deal is complete the company will have a net cash position of $20.7 million and an enterprise value of $74 million.

Chairman Bernie Brookes said that Hobby Warehouse was the right vehicle to allow Funtastic’s brands and shareholders to accelerate growth in the online retailing space.

“The wider range of baby, toy and hobby products that will be distributed via the Funtastic distribution arm will allow us to develop more innovative digital and sourcing strategies to support both our physical and online retail customers,” he said.

Brookes will stand down after the deal is complete and will be replaced by Kevin Moore, who is also on the board of InvestSMART (ASX:INV).

“Together we will build a formidable company with strong foundations over the next several years,” he declared this morning.

Funtastic suspended trading in its shares for nearly a month as the deal was negotiated.

Despite March’s drop they have more than tripled this year. They are set to climb further when trading recommences with the deal done at 11.2 cents per share.

Shares will recommence trading on Monday but shareholders won’t vote on the deal for another month until the company’s AGM.