By Dawn Chmielewski and Deborah Mary Sophia

(Reuters) -Walt Disney Co said on Monday it would merge its Hulu + Live TV business with smaller rival FuboTV, removing a significant hurdle to the launch of its sports streaming venture with Fox Corp and Warner Bros Discovery.

The combination creates the second-biggest online pay-TV company in North America, behind YouTube TV , with around $6 billion in revenue and 6.2 million subscribers. The services deliver cable TV-like packages of channels via the internet, offering an alternative to cable or satellite TV subscriptions.

Disney will hold a 70% majority stake in the combined Fubo and Hulu + Live venture, which will be led by Fubo CEO and co-founder David Gandler. The deal excludes Hulu’s mainstay video-streaming business.

Wall Street investors reacted enthusiastically to the deal. Shares of Fubo, which had a market value of about $480 million as of its Friday close, surged roughly 260% to $5.18 in afternoon trading. Disney was up marginally.

As part of the agreement, Fubo, a sports live-streaming service, asked the U.S. District Court in Manhattan on Monday to dismiss its lawsuit against Venu Sports, the streaming service planned by Disney, Fox and Warner Bros Discovery. Under the litigation settlement, the companies will pay Fubo $220 million in cash, with Disney also committing to a $145 million term loan for Fubo in 2026.

FuboTV, in its lawsuit filed against the three companies last February, had accused Venu’s partners of engaging in anti-competitive practices that would thwart competition for sports fans. At issue was a practice known as “bundling,” in which TV distributors like Fubo are forced to carry networks that “consumers rarely watch” to gain rights to prized live sports programming. Fubo argued it was unable to gain the rights to create a sports-centric service, in the mold of Venu.

U.S. District Judge Margaret Garnett had found Fubo was likely to succeed in its antitrust claims and issued the injunction temporarily barring Venu’s launch.

Venu’s media partners were scheduled to appear in U.S. Court of Appeals on Monday, to ask the court to reverse the ruling that blocked the launch of the sports streaming service.

“Disney’s tie-up with Fubo looks like a way of resolving a legal spat as part of its efforts to get a sports venture with Fox and Warner Bros off the ground,” said Dan Coatsworth, an investment analyst with AJ Bell. “It’s a step forward, but there are still more hurdles to clear to get the Venu Sports service operational.”

Spokespeople for Warner Bros Discovery and Fox declined comment.

As part of Monday’s announcement, Disney will also enter into a licensing agreement that would allow Fubo to create a sports-focused service featuring Disney’s sports and broadcast networks including ABC and ESPN, as well as ESPN+.

Fubo’s Gandler told investors that the new agreement with Disney advances Fubo’s long-held goal “to deliver flexible, innovative and competitive content packages to consumers, particularly around sports.”

Fubo’s shares tanked more than 60% in 2024, as the company’s revenue growth slowed and competition intensified from bigger rivals.

Fubo and Hulu + Live TV will continue to be available to consumers as separate offerings after the deal is closed, with Fubo focused on sports and news and Hulu + Live TV as an entertainment-focused cable replacement service.

“The new product will be publicly traded under the Fubo name and run by its CEO,” said Ross Benes, senior analyst at Emarketer. “That signals Disney is looking to eventually get out of being a pay TV operator and go all-in on streaming.”

Hulu + Live TV will continue to be offered as part of Disney’s package of streaming services, which include Disney+, Hulu and ESPN+.

The deal includes a termination fee of $130 million.

(Reporting by Dawn Chmielewski in Los Angeles and Deborah Sophia in Bengaluru; Editing by Shilpi Majumdar, Shinjini Ganguli, Lisa Shumaker and Leslie Adler)

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