Disney and Fubo shocked the industry, announcing that the sports-centered streaming service is merging with Disney’s Hulu + Live TV

Fubo and Disney have been locked in a legal battle, with Fubo challenging Disney’s plans to create a sports-oriented streaming service with Fox and Warner Brox. Discovery. The two companies have agreed to a deal that ends the legal battle, one that sees Disney purchase a 70% stake in Fubo. Fubo co-founder and CEO David Gandler will lead the combined business.

“We are thrilled to collaborate with Disney to create a consumer-first streaming company that combines the strengths of the Fubo and Hulu + Live TV brands,” said Gandler. “This combination enables us to deliver on our promise to provide consumers with greater choice and flexibility. Additionally, this agreement allows us to scale effectively, strengthens Fubo’s balance sheet and positions us for positive cash flow. It’s a win for consumers, our shareholders, and the entire streaming industry.”

“This combination will allow both Hulu + Live TV and Fubo to enhance and expand their virtual MVPD offerings and provide consumers with even more choice and flexibility,” said Justin Warbrooke, Executive Vice President and Head of Corporate Development, The Walt Disney Company. “We have confidence in the Fubo management team and their ability to grow the business, delivering high-quality offerings that serve subscribers with the content they want and offering great value.”

The combined business will have more than 6.2 million subscribers, still behind YouTube TV’s more than 8 million subscribers, but in a solid second-place. Fubo and Hulu + Live TV will still be available separately, although the combined company will be in a better position to negotiate content agreements.

The companies touted the benefits of a combined company.

Following the closing of the Transaction, Fubo will be governed by a board of directors with the majority appointed by Disney, as well as independent directors. Gandler will also serve on the board of directors continuing as Fubo’s CEO. The Transaction will provide the combined company with the resources and support of Disney, and the existing Fubo management team will continue to focus on driving growth and profitability.

The Transaction will also enable Fubo shareholders to benefit from synergies of the combination. The combined business will realize synergies through more flexible programming packaging to cater to all audiences, greater innovation, and sales and marketing opportunities.

The deal does not include Hulu’s traditional subscription video on demand (SVOD) service, only it’s live TV service. Should the deal fail for various reasons, including failure to receive regulatory approval, Disney will pay Fubo a $130 million termination fee.

What Analysts Say

As stated, the deal took the industry by surprise, with virtually no one anticipating this end to Disney and Fubo’s legal battle. That shocked continued as analysts broke down the deal.

“Frankly, we didn’t see this one coming,” wrote Bernstein analyst Laurent Yoon in a report, via The Hollywood Reporter. “We didn’t expect Disney (or anyone) to effectively acquire a troubled vMVPD asset with, at best, an uncertain future. What we missed was Disney’s willingness to spin off its own vMVPD business – which essentially operates with zero margins (dilutive to expanding direct-to-consumer (DTC) margins going forward) – and its need to create additional price tiers for sports fans (Venu and perhaps through Fubo) to mitigate the downside from [the ongoing] pay-TV decline.”

“Financially speaking, this combination with Fubo doesn’t move the needle much, but strategically we think it’s a good move to help consolidate the distribution business further, which could open up more opportunities in carriage negotiations as well as in developing more programmatic advertising,” wrote Macquarie media and tech analyst Tim Nollen, also via The Hollywood Reporter. “For Fubo, it’s a neat resolution to the key issues that have weighed on it for some time now – combining with Disney provides it much more scale, and resolves the Venu dispute. New Fubo should therefore hasten the growth of streaming sports, providing it the goal it has long sought – to be a sports focused DTC service.”