updated 5/11/2007 7:12:49 AM ET 2007-05-11T11:12:49

Ice cream maker Cold Stone Creamery and fast-food operator Kahala Corp. will combine to form a holding company they hope will be able to compete with private equity firms for a greater share of the fast-food sector.

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The 13 brands under the new Kahala Cold Stone umbrella will include submarine sandwich shop Blimpie, cheesesteak chain The Great Steak & Potato Co., chicken sandwich maker Ranch 1 and Mexican fast-food chain Taco Time, among others.

The privately held companies didn’t disclose terms.

The new holding company, which will be headquartered their home base of Scottsdale, Ariz., is expected to generate more than $1.1 billion in sales with more than 3,000 franchisees and about 4,600 retail locations in 15 countries.

“If you look at the portfolio, you could basically build an entire food court with all the brands in Kahala Cold Stone,” said Kevin Blackwell, the founder and chief executive of Kahala and the new Kahala Cold Stone chairman.

But Blackwell isn’t planning on stopping there. Blackwell and CEO Doug Ducey — the former Cold Stone Creamery CEO and chairman — are looking to turn the holding company into a brand-building franchise firm.

“Once we get the two companies integrated ... we’re clearly going to look at any other opportunities,” he said.

The deal follows a flurry of merger and acquisition activity.

Last month Wendy’s International Inc., the country’s No. 3 hamburger chain, announced it was considering a possible sale and appointed a committee to study its options.

OSI Restaurant Partners, which operates the Outback Steakhouse, is preparing for a shareholder vote on a buyout offer from private equity firm Kangaroo Holdings Inc.

Much of the activity is coming from private equity groups. If Kahala Cold Stone were looking for more acquisitions for its portfolio, it would have to compete with those companies and some very substantial cash reserves.

“I would say any company who’s trolling for acquisitions is going to see a lot of competition from private equity,” said Morningstar analyst John Owens. “In that environment, it might be difficult to find companies to buy.”

But Ducey said Kahala Cold Stone may have at least one advantage over cash-rich private equity firms.

“I think anybody that truly loves their brand and has passion for their brand would prefer to have their brand under Kahala Cold Stone” than a private equity firm who’s main concern is contributing more cash to its coffers, he said.

“We love these brands,” he added.

Ducey and Blackwell also said they may eventually take the holding company public.

“It’s set up to continue to grow,” Blackwell said.

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