Australia’s biggest toy company, Funtastic Ltd, has today cemented a marriage with the world’s biggest child care company, ABC Learning, in an effort to dilute the destructive power of Coles and Woolworths.

Funtastic shareholders today approved the issue of 29.1 million shares at the knockdown price of $1.36 to ABC Learning in exchange for its toy division Judius.

In return for allowing Eddie Groves to become the largest Funtastic shareholder with 19%, ABC Learning has granted it a 20 year supply deal that will take in its Australian, New Zealand and US operations.

ABC Learning only bought the Judius business last year but has quickly more than doubled sales through direct marketing to its 130,000 families in Australia. Now Judius has been flipped into Funtastic for a handy profit.

I was one of the Funtastic shareholders who took up the recent $5000 share purchase plan at $1.53 a pop, so several of us today asked the board to do another offer at the same privileged price that ABC Learning was paying.

However, the deal has been welcomed by the market as Funtastic shares are up another 2c to $1.60 today and ABC Learning jumped 14c to a record $8.55, giving it a stunning market capitalisation of $3.4 billion. The paper profit on the Judius sale to Funtastic is already $7 million and the man who sold the Judius business to Eddie, Julius Opit, told me after today’s meeting that ABC Learning had done very well buying the business he ran for 32 years.

Funtastic chairman David Hendy didn’t hold back in his attacks on Australia’s retailing duopoly, warning that Coles and Woolies were “taking over everything that moves”.

Surplus stocks were blamed for the recent profit downgrade by Funtastic and Hendy said the duopoly were increasingly happy to bring in cheap generic goods at the expense of respected brands. Funtastic claims to have the world’s best toy brands but this hasn’t saved it from the brutal market power of Coles and Woolies.