The Canadian Press

Fairfax Financial Holdings Ltd. (TSX:FFH) said Tuesday it has acquired a 19.7% stake in Mega Brands Inc. as part of a capitalization of the toy company.

Fairfax said it has acquired nearly 64.7 million shares of Mega Brands and the same number of warrants, with each warrant entitling the holder to buy one share at a price of 50 cents at any time until March 30, 2015.

The company said 51.6 million of the shares and warrants were acquired in a private placement and 13.1 million shares and warrants were acquired in exchange for the cancellation of $64 million convertible debentures.

Fairfax said the shares and warrants were purchased for investment purposes.

Under the recapitalization plan, the maker of Mega Bloks construction toys will receive a total of US$218.1 million, including US$121 million from the sale of equity to current major shareholders and new investors.

Mega Brands has said the plan will restructure its balance sheet without affecting its employees or customers.

Industry observers have said the recapitalization buys Mega Brands time but isn’t a panacea.

It still faces the daunting task of boosting sales and reversing market share losses in key categories such as stationery and activities in the face of a toy market that is expected to shrink again this year.

The company has been battered by the economy and several recalls of its magnetic line of toys that prompted losses and writedowns.