CBS CBS Corp

By Joe Flink and Amol Sharma 

The power struggle at the top of Sumner Redstone's media empire moved toward a climax on Monday as two of the mogul's top associates filed a suit accusing his daughter Shari Redstone of trying to stage an effective coup.

The removal over the weekend from a trust that will oversee Mr. Redstone's nearly 80% voting stakes in Viacom Inc. and CBS Corp., combined with Ms. Redstone's recent assumption of her father's health care, has put her in a strong position to dictate events as a battle unfolds over control of the media giants.

But first she must survive a legal fight that challenges her role. On Monday, Viacom Chief Executive Philippe Dauman and George Abrams, a Viacom director, filed suit to invalidate their removal and to reinstate the pair as directors of National Amusements Inc., the company that holds those controlling stakes.

Messrs. Dauman and Abrams were informed of their dismissals Friday by a lawyer claiming to represent the mogul. They quickly contested the legitimacy of the move, questioning the lawyer's relationship to Mr. Redstone.

In the complaint, Messrs. Dauman and Abrams named Ms. Redstone as a defendant, accusing her of orchestrating the changes to the trust and taking advantage of her ailing, 92-year-old father.

The mogul's "multi-billion dollar businesses have been seized by an estranged daughter who has manipulated her father to achieve her goals," the suit charged.

A spokeswoman for Ms. Redstone had no comment on the lawsuit. An earlier statement issued on Ms. Redstone's behalf said, "It is absurd for anyone to accuse Shari of manipulating her father."

The complaint included sobering descriptions of Mr. Redstone's health. It claimed he is in "the grip of a neurological disorder" characterized by conditions such as dementia, impaired cognition and memory loss and that he is "unable to initiate or participate in meaningful conversation."

Last fall, Mr. Dauman had described Mr. Redstone as "engaged and attentive" in an affidavit supporting the mogul in a lawsuit by his former companion, who challenged his mental competency.

Robert Kleiger, a lawyer for Mr. Redstone, filed a petition on the mogul's behalf on Monday in a Los Angeles court seeking to validate the removals of Messrs. Dauman and Abrams, arguing there is no evidence Mr. Redstone lacks capacity.

Mr. Redstone was hospitalized within the past two weeks, people familiar with the matter say, though the reason wasn't clear. One person described the issue as minor.

Ms. Redstone's limited influence on Viacom's board was highlighted in February, when she was the only board member not to vote for Mr. Dauman's promotion to executive chairman, replacing Mr. Redstone. She has been estranged from her father over the years and as recently as 2014 he tried to buy out her 20% stake in National Amusements for $1 billion but she rejected the offer. She lately worked to repair the relationship.

Now, unless the court intervenes, the changes to the trust will give Ms. Redstone tremendous sway over Viacom and CBS's future. In place of Messrs. Dauman and Abrams, the trust is expected to tap Thaddeus Jankowski, a senior vice president and general counsel of National Amusements, and Jill Krutrick, a financial analyst, people familiar with the matter said. Both are close to Ms. Redstone. In addition, Ms. Redstone's daughter Kimberlee Ostheimer is expected to be tapped for National Amusements's board of directors.

People close to Viacom fear that the next move could be for Mr. Redstone, at Ms. Redstone's behest, to try to overhaul Viacom's board and replace Mr. Dauman as CEO, which is within the power of National Amusements.

The complaint alleged that the new appointees are under Ms. Redstone's control and "will illegitimately tip the balance of power to her" when control of the Redstone media empire shifts to the trust.

"Mr. Redstone is saddened that Mr. Dauman is trying to make this dispute about his daughter," Mr. Kleiger, the mogul's attorney, said in a statement. "It is about Mr. Redstone's right to have the individuals he wants and trusts managing his assets upon his death, and protecting the financial interests of his grandchildren."

As infighting goes on in Viacom's upper ranks, the company is trying to turn around its business, which includes well-known cable-television brands such as MTV, Nickelodeon and Comedy Central. The stock price is down 40% over the past year.

The legal fight creates a distraction as Viacom tries to sell a stake in Paramount Pictures, its movie studio. "Until this is resolved it creates a huge uncertainty," a person familiar with the situation said.

Mr. Redstone doesn't want to sell a piece of Paramount unless the board "presents a concrete plan that convinces him otherwise," Mike Lawrence, a spokesman claiming to represent Mr. Redstone, said on Sunday.

A Jefferies LLC analyst on Monday wrote the Paramount stake sale is "essential to our buy rating" on Viacom's stock, because it would help the company reduce debt and provide cash for investment.

An executive at a company that has been exploring a bid for the Paramount stake said the events of the past few days "cause us to really rethink our interest in the asset."

Meanwhile, some investors are growing tired of the feuding and corporate dysfunction at Viacom. "There are all kinds of questions around management and governance, but not enough focus on operations and the guts of the core business," said Mike Cuggino, president and portfolio manager of Permanent Portfolio Family of Funds Inc., one Viacom investor.

CBS declined to comment on the recent events. CBS Chief Executive Leslie Moonves, unlike Mr. Dauman, has had a strong relationship with Ms. Redstone. She gave her blessing to his elevation to CBS chairman.

Two weeks ago, a Los Angeles judge dismissed a suit by Manuela Herzer, a former girlfriend and companion of Mr. Redstone who argued he was mentally incompetent last fall when he evicted her and removed her as his health-care agent.

Mr. Redstone provided a taped deposition in that case where he struggled to communicate and recall basic facts but also made clear a disdain for Ms. Herzer.

In the complaint Monday, Mr. Dauman said in that affidavit in the Herzer case he "made no observations about Mr. Redstone's capacity to make significant business decisions."

He added that he visited Mr. Redstone in March and the mogul was "almost totally nonresponsive, and could not meaningfully communicate at all."

--Joann S. Lublin and Ben Fritz contributed to this article.

Write to Joe Flint at joe.flint@wsj.com

(END) Dow Jones Newswires

May 23, 2016 18:10 ET (22:10 GMT)

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