If the deal is approved by Italian regulators it will create a company with between 2m to 3m customers in Italy and revenues of around $1bn (£720m).
Under the terms of the agreement, News Corp will buy the 50% of Stream it does not already own from its partner in the business, Telecom Italia. Vivendi will then buy 25% of that stake.
News Corp's 75% holding in Stream will then be merged with Telepiu and Vivendi's Stream holding. The new company will be 75% owned by Vivendi and 25% owned by News Corp, which has the option to increase its stake to 50% during the next three years.
The companies say they hope to be able to stem the hundreds of millions of dollars the two units have been losing by lowering the cost they pay for programming. These savings would then be passed on to consumers.
However, regulators are concerned that a single pay-TV company controlling the market would be anti-competitive. There are particular concerns that some sectors, notably football rights, would suffer from reduced competition in pay TV.