Funtastic makes play for Toys R Us Australia

It is understood that the acquisition will involve Funtastic buying the business with its scrip and is expected to be announced by next week. Picture: Justin Brierty

Australian listed retailer Funtastic is on the cusp of buying Toys R Us Australia and Babies R Us Australia from Louis Mittoni, according to sources.

Toys R Us Australia and New Zealand is a subsidiary of the Hobby Warehouse Group, owned by Mr Mittoni.

It operates under a long-term licence agreement from Toys R Us Kids based in the US.

It is understood that the acquisition will involve Funtastic buying the business with its scrip and is expected to be announced by next week.

Funtastic shares have not traded since the start of this month as they were halted pending an announcement.

The company said when delivering its results it was in talks about the potential acquisition of certain businesses that aligned with its strategic direction.

At the time, Funtastic said if the transaction was to proceed, it would likely undertake a capital raising.

At the start of this month, Funtastic said discussions about the acquisition were well progressed.

Funtastic is a leading distributor of toys and confectionery across Australia and also distributes toy brands overseas.

It describes itself as a company that creates, develops and markets innovative brands, with its brands including Xtreme, Pillow Pets, Toy Story 4, Chill Factor, Strawberry Shortcake, Beacon and AFL.

When Toys R Us collapsed in 2018, it was Funtastic’s fourth largest trading partner and it was forced to downgrade its full-year earnings guidance by as much as $1m.

Funtastic, once a soaring small-capitalisation market darling, has struggled in recent years.

An attempt to delist the company about two years ago failed and the board has been trying to turn around the underperforming business.

It recently appointed former Myer boss Bernie Brookes as its chairman.

For the 2020 financial year amid the COVID-19 disruption, Funtastic posted a $9.2m loss, a result 221 per cent lower than in the previous corresponding period when it delivered a $7.5m net profit from continuing operations.

During the year, the company rationalised its product portfolio, which included the exit of unprofitable toy distribution and apparel divisions, and streamlined the business to focus on product ranges offering growth potential.

It also announced a restructuring of the business, which is now largely complete.

Funtastic also introduced new product ranges, including Moochies smart watches for children and educational products range Learning Resources.