Retail giant Gerry Harvey has thrown his support behind toy company Funtastic by sub-underwriting the $4.4 million retail component of its capital raising after retail investors showed little interest in the toy wholesaler.
Three weeks after Funtastic opened the $4.646 million retail component of its $25 million capital raising, the toy company announced that Bell Potter Securities had underwritten its retail entitlement offer and a private company associated with Harvey had fully sub-underwritten it.
Harvey is expected to emerge as a “reasonably sized shareholder” with around a 3% to 4% stake in the wholesaler of toy brands including Lego, Leap Frog and Pillow Pet.
Funtastic chairman Shane Tanner told SmartCompany the success of the retail component of the offer was now assured and he was delighted that one of the country’s leading retailers had chosen to support Funtastic.
“Through our board, we had a number of contacts to Gerry Harvey personally. We thought he might like the opportunity to participate in the sub-underwriting and we were keen to get another key shareholder into the company,” says Tanner.
“We already have key personal shareholders, including the Murdoch family, and he was keen on Funtastic’s prospects.
“It’s a business that has been through some issues but has had a huge profitable rebound through the toughest retail sector in recent years. He liked the idea of stocks in the retail sector that were doing well.”
Tanner says Funtastic has undertaken the capital raising to combat the “horrendous debt and losses” which the current management discovered when they came on board two years ago.
Funtastic’s plan is to use $15 million of the money raised to immediately repay the parent company’s debt, which will strengthen the balance sheet.
The toy wholesaler expects earnings to be between $23 million and $25 million in 2013, before interest, tax, depreciation and amortization, up from this year’s expected $20.1 million.
“We are now back into serious profitability and have reduced debt from $120 million to $70 million. We wanted to bring debt down by another quantum leap to restore dividends, with this capital raising that will be achieved this year,” says Tanner.
“We are quite confident in the future of the business, otherwise we would not have done the capital raising at the most difficult time in the current cycle.”
Tanner says Harvey’s investment was “not at all” because the levels of interest from the retail sector in the capital raising were so low.
“It would have been a successful capital raising whether or not the retail sector had taken up its full entitlement, but we just wanted to make sure it was a resounding success so we looked at a number of underwriters, including Gerry Harvey,” Tanner says.