SCHEDULE: Disney's Hulu Takes 70% Stake in FuboTV Operations

The Walt Disney Company and its subsidiary Hulu have acquired a 70% economic interest in FuboTV's operations, forming a combined virtual MVPD company.

Summary

• The Walt Disney Company and its subsidiary Hulu, LLC (the "Reporting Persons") have acquired a 70% economic interest in Fubo Operations LLC ("Newco"), the entity now holding FuboTV's business.
• This transaction resulted from a Business Combination Agreement dated January 6, 2025, where Hulu contributed certain "Hulu + Live TV" assets and FuboTV contributed its entire business to Newco.
• FuboTV underwent an "Up-C" reorganization, and Hulu received 947,910,220 shares of FuboTV's Class B Common Stock, representing 70% of FuboTV's outstanding capital stock on a fully-diluted basis.
• The Class B Common Stock, together with corresponding Newco Units, can be exchanged for FuboTV Class A Common Stock or, at FuboTV's option, cash.
• The Reporting Persons' beneficial ownership of FuboTV Class A Common Stock (assuming full exchange) is 947,910,220 shares, representing 70% of the class.
• The stated purpose of the transaction is to form a combined virtual MVPD company and enhance consumer choice with a broad set of programming offerings.

Sentiment

Score: 7

Explanation: The transaction represents a substantial strategic alignment and investment by Disney/Hulu into FuboTV's operations, aiming to create a stronger virtual MVPD. While it brings significant programming assets and potential for growth, FuboTV cedes majority economic and governance control over its core business to Hulu, which could impact its long-term autonomy.

Positives

• Formation of a combined virtual MVPD company, potentially enhancing market position and programming offerings.
• Expanded programming offerings for consumers, which could drive subscriber growth for the combined entity.
• Hulu's significant investment and strategic alignment with FuboTV, bringing a major media conglomerate's resources.
• FuboTV benefits from tax savings through the Tax Receivables Agreement, sharing a percentage of historic Net Operating Losses (NOLs) and tax basis increases with Hulu.

Negatives

• FuboTV's economic interest in Newco is reduced to 30%, indicating a loss of majority control over its core operations.
• Hulu has the right to designate a majority of FuboTV's board of directors, potentially limiting FuboTV's independent strategic direction.
• A 24-month lock-up period restricts Hulu's ability to transfer its shares, which could create a significant stock overhang once the period expires.

Risks

• Future actions by Reporting Persons could include disposing of securities, business combinations, changes in FuboTV's board or management, changes in capitalization or dividend policy, or alterations to FuboTV's business or corporate structure.
• The value of FuboTV's Class A Common Stock could be affected by Hulu's potential future sales of shares after the 24-month lock-up period.
• FuboTV's ability to make independent strategic decisions may be constrained by Hulu's majority board designation rights and voting agreement.

Future Outlook

The Reporting Persons intend to periodically review their investment in FuboTV, its business affairs, and general industry conditions. They may, at any time, acquire or dispose of additional FuboTV securities, pursue business combinations, or make changes to FuboTV's board of directors, management, capitalization, dividend policy, business structure, or corporate governance documents. Hulu has the right to designate a majority of FuboTV's directors and intends to exercise this right.

Management Comments

• The purpose of the Transactions was to form a combined virtual MVPD company and enhance consumer choice by making available a broad set of programming offerings.
• Hulu has the right under the Fubo Charter to designate a majority of the directors on the Issuer's board of directors and intends to do so for so long as it has such right.

Industry Context

This transaction signifies a major consolidation in the virtual multichannel video programming distributor (MVPD) market, bringing together assets from Hulu + Live TV and FuboTV under a new operational structure largely controlled by Disney/Hulu. It aims to enhance consumer choice by combining programming offerings, potentially creating a stronger competitor against other streaming and traditional pay-TV services. This move reflects the ongoing trend of media companies seeking to consolidate their streaming assets and gain market share in a highly competitive landscape.

Comparison to Industry Standards

• The formation of a combined virtual MVPD company with a 70% economic interest for a major media conglomerate like Disney (via Hulu) is a significant strategic move, comparable to other large media companies consolidating their streaming and distribution assets, such as Comcast's Peacock or Warner Bros. Discovery's Max.
• The "Up-C" reorganization structure is a common mechanism used by companies to allow existing owners of a pass-through entity (like Newco) to retain their tax-advantaged structure while allowing the public company (FuboTV) to acquire an interest in the operating business, similar to structures used by companies like KKR & Co.
• The inclusion of a Tax Receivables Agreement (TRA) is standard in "Up-C" structures, allowing the original owners (Hulu) to benefit from the tax attributes (like NOLs and basis step-ups) that the public company (FuboTV) can utilize, aligning incentives and compensating for transferred tax benefits.

Management Changes

Corporate Governance

Related Party Transactions

• The entire business combination and subsequent agreements (Business Combination Agreement, Registration Rights Agreement, Tax Receivables Agreement, Newco LLCA, Stockholders Agreement) constitute related party transactions between FuboTV, Hulu, and The Walt Disney Company.
• FuboTV is obligated to pay Hulu a percentage of tax benefits realized from FuboTV's historic net operating loss carryforwards and increases in tax basis.
• Hulu has a redemption right to exchange its Newco Units and Class B Common Stock for FuboTV Class A Common Stock or cash.
• FuboTV has financial and other reporting obligations to Hulu and its affiliates.

Stakeholder Impact

• Shareholders (FuboTV): Existing FuboTV shareholders now own a company where 70% of the economic interest in its core operations is held by Hulu, and Hulu has significant governance control. This could lead to strategic shifts aligned with Disney's broader interests.
• Shareholders (Disney): Disney gains a 70% economic interest in a combined virtual MVPD entity, potentially strengthening its position in the streaming market and diversifying its entertainment distribution.
• Customers: The stated purpose is to enhance consumer choice by making available a broad set of programming offerings, potentially leading to more comprehensive content bundles.

Next Steps

• FuboTV is required to file a Resale Shelf registration statement for Hulu's Class A Common Stock as soon as practicable after the Closing Date, but no later than when FuboTV files financial statements for the transactions (Item 9.01 Form 8-K).
• Hulu intends to designate a majority of the directors on FuboTV's board of directors.
• Hulu and its affiliates are prohibited from transferring their shares for 24 months following the completion of the transactions.
• FuboTV is subject to certain financial and other reporting obligations to Hulu and its affiliates.

Key Dates

Recommendation

This transaction fundamentally alters FuboTV's ownership and governance structure, with Disney's Hulu taking a dominant 70% economic and control stake in the combined virtual MVPD operations. While the strategic alignment with a major media conglomerate offers potential benefits in terms of programming and market position, FuboTV's independent strategic flexibility is significantly reduced. The 24-month lock-up provides near-term stability, but the long-term implications of being a controlled entity, including potential future share sales by Hulu, create uncertainty. Investors should hold to observe how the new operational and governance structure impacts FuboTV's performance and strategic direction under Hulu's influence.

Keywords

FuboTV, Hulu, Walt Disney Company, Streaming, MVPD, Business Combination, Schedule 13D, Beneficial Ownership, Corporate Governance, Tax Receivables Agreement, Registration Rights, Up-C Reorganization