By Joe Flint and Amol Sharma 

The bitterness in the legal fight between Viacom Inc. and its controlling shareholder, Sumner Redstone's National Amusements Inc., was on display Thursday as the two sides quarreled over the quality of the struggling media company's quarterly earnings report and its progress toward a turnaround.

Yet behind the scenes, the prospect for them to settle their dispute is still alive, people familiar with the situation said. The most recent round of settlement talks fell through last week, and they are still far apart on key issues, but there is still an opportunity for detente.

The feud is over decisions by Mr. Redstone, who is 93 years old and in poor health, to reshape his empire. Earlier this year he removed top lieutenants, including Viacom Chairman and Chief Executive Philippe Dauman and director George Abrams, from the trust that will oversee his holdings when he dies or is declared incapacitated. And National Amusements later moved to replace five directors at Viacom.

Messrs. Dauman and Abrams have challenged their dismissal from the trust in Massachusetts court, arguing Mr. Redstone doesn't have mental capacity to make such decisions and is under the influence of his daughter Shari Redstone, a charge she denies. A Delaware court is hearing a similar challenge to the board dismissals.

Both cases would go to trial in October unless a settlement is reached.

One issue to resolve in a settlement, the people familiar with the matter said, is that some Viacom directors would like to put in place rules that ensure protections for independent board members in the future. Without those, a controlling shareholder like National Amusements has almost unfettered ability to remove directors. National Amusements has a nearly 80% voting stake in Viacom.

The two sides also must agree on how long current directors could continue on before being replaced by National Amusements' preferred slate. Mr. Abrams resisted the settlement proposal that was being negotiated, people familiar with the situation said.

Mr. Dauman said Thursday that recent decisions by the Massachusetts and Delaware courts to let those cases proceed have him feeling more optimistic.

"We view these favorable court rulings as positive steps that move us ahead toward a resolution," Mr. Dauman told analysts on a conference call to discuss the company's fiscal third-quarter results.

The earlier settlement talks, which fell through after those rulings last week, would have led to Mr. Dauman's resignation and Chief Operating Officer Tom Dooley being named interim chief executive, people familiar with the matter said.

The legal tussle has hindered Viacom's efforts to sell a minority stake in its struggling Paramount Pictures movie unit, the company says.

"The process has slowed down in recent weeks," Mr. Dauman said of a possible Paramount deal.

National Amusements and Mr. Redstone, through representatives, have questioned the wisdom of selling a chunk of Paramount, a key dispute that set off the recent power struggle.

For the June quarter, Viacom said revenue from the company's media networks, which include channels like MTV, Comedy Central and Nickelodeon, declined 3.2% as domestic ratings fell and advertising dollars declined. Amid declining sales and climbing expenses, profit in the segment tumbled 22%. Mr. Dauman noted that Viacom's international performance during the quarter was stronger than its domestic showing.

Viacom's filmed entertainment revenue, meanwhile, jumped 30% from a year earlier, thanks largely to higher licensing fees. Total revenue edged up 1.6% to $3.12 billion.

For the quarter ended in June, Viacom reported a profit of $432 million, or $1.09 a share, down from $591 million, or $1.47 a share, a year earlier. Excluding a tax benefit, per-share earnings fell to $1.05 from $1.47.

Reacting to the results, National Amusements reiterated its call for new leadership atop Viacom on Thursday, criticizing the "steep erosion" in the company's financial and operating performance. In particular, National Amusements highlighted Viacom's stock decline, exodus of creative talent, declining cable ratings and weakening credit rating outlook as reasons why its attempted board overhaul should proceed.

"The current board continues to allow Viacom to remain in a state of prolonged and costly paralysis, obstructing changes that are essential to revitalize the company's assets and create long-term value," National Amusements said.

In response, a Viacom spokesman said the company continues to execute on a strategic plan supported by independent directors. "It is unfortunate that one of our directors feels the need to try to damage the company in response to losses in the courtroom," he said, referring to Ms. Redstone, president of National Amusements.

--Lisa Beilfuss and Joann S. Lublin contributed to this article.

Write to Joe Flint at joe.flint@wsj.com and Amol Sharma at amol.sharma@wsj.com

 

(END) Dow Jones Newswires

August 04, 2016 19:01 ET (23:01 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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