Dairy Queen will acquire McDonalds for $9.5bn, according to a filing with the U.S. Securities and Exchange Commission on Thursday.
The purchase will give the chain a foothold in the fast-growing, rapidly expanding market for fast-casual restaurants, and could provide another piece to its growing portfolio of fast-food franchises.
The transaction is expected to close in 2020.
As of Dec. 31, Dairy Queen had about 4,400 restaurants across the U, according the filing.
The company currently operates about 200 stores in the U., and has plans to expand to 50 by the end of 2021.
The deal would bring the company to more than 100 locations in the states of Georgia, Mississippi, South Carolina and Tennessee, according an investor presentation.
The move is expected, and some analysts are skeptical, that Dairy Queen could keep its lead in the rapidly growing market.
The chain is expected in 2020 to be valued at about $20 billion, according a Bloomberg article.
“I’m not buying into the argument that Dairy Queens are a fast-growth company,” said Robert A. Koehler, an analyst at Wedbush Securities.
“We don’t believe that is the case.”
But some analysts aren’t buying the move, either.
“Dairy Queen is a very expensive business to be in,” said James Fadiman, a professor at Harvard Business School.
“The question that we have is: Are they going to be able to sustain that and still be profitable?”
While Dairy Queen’s acquisition of McDonalds may be a surprise, the company’s continued expansion in the market for the fast food sandwich is no surprise.
“Dairy Queens are already a huge part of the McDonalds portfolio, but I think it is still the case that the market is quite diverse,” said Koehl.
“They are really well-positioned in the country, and they can continue to expand their presence and be a strong presence in the food-service sector.”
The deal is expected by some analysts to be less than half as much as what McDonalds had initially asked for.
Dairy has also been in talks with McDonalds’ CEO, Steve Easterbrook, about other restaurants, according to Bloomberg.
“If the deal closes, that would be good news for Dairy Queen and McDonalds,” said Fadamm.
At a time when McDonalds has been struggling to keep up with fast-fashion trends, the deal would provide an even stronger competitor for the chain.
On Thursday, the market was on the edge of its own buying frenzy after McDonalds stock surged over 15% in early trading.
As part of its bid for McDonalds, Dairy Queens is expected to offer the company a variety of menu options including burgers, fries, chicken sandwiches, salads and sandwiches, among other items.
With this deal, Dairy King will also be able to keep its current franchise footprint.
The new company will have a mix of restaurants across five states, including Georgia, South Africa, Mississippi and Tennessee.
It is unclear if the chain will retain the original franchisees who are also part of McDonald’s franchisee network.
The announcement is a huge win for Dairy King, which has been plagued by financial woes and has been losing ground to fast-paced competitors.
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