As the Redstones Turn: Hollywood Soap Opera Drags Down Stock Prices (Not to Mention Morale) at Viacom and CBS

Frederick M. Brown/Getty Images; REUTERS/Newscom (2)
Left: Sumner Redstone with daughter Shari; Middle: Manuela Herzer; Right: Herzer's attorney Pierce O'Donnell

In the latest twists, Sumner Redstone's former companion Manuel Herzer files a new $100 million lawsuit and recordings surface of phone calls allegedly made by the 92-year-old mogul soliciting threesomes.

On May 9, for a fleeting few minutes, it seemed like the legal saga engulfing media mogul Sumner Redstone was about to fade away. A judge tossed out former girlfriend Manuela Herzer's lawsuit demanding she be reinstated as his health agent, removing a distraction that dogged investors and employees of Viacom and CBS for nearly six months.

Then the next wave hit: Herzer's attorneys immediately filed a new lawsuit, this time against daughter Shari Redstone, her two sons and several of Sumner's home staffers. The legal action seeking $100 million in compensation claims the defendants conspired to turn the 92-year-old billionaire against her.

As if that wasn't enough, gossip website Radar Online released a salacious series of phone calls purportedly made by Sumner Redstone trying to set up orgies for himself and his friends. The profane audio — probably several years old — has slowly been making the rounds among employees.

This latest wrinkle in the ongoing saga ensures that inside the halls of CBS and Viacom, the torrid and tattered relationship between Redstone and his former lovers will remain impossible to ignore, according to several employees who spoke on the condition of anonymity. "The media is obsessed with this story, so how could we not be focused on it?" says one high-ranking Viacom employee.

Says another insider: "This is nowhere near over. We ended season one with the judge's ruling. Season two opens with the sex tape and the lawsuit."

Though the latest against Redstone is of a personal nature, there is no doubt it is reverberating on Wall Street.

Redstone controls both CBS and Viacom through the vast majority of their voting shares (via his stake in National Amusements). But Viacom has been far more entwined with his personal affairs since CEO Philippe Dauman was named his health agent after Herzer was removed in October, then Shari replaced him in April. Also, insiders say both Sumner and Shari Redstone object to Dauman's plan to sell off a piece of Paramount, so Sumner's mental state (and business acumen) is more relevant.

Between Nov. 25, when Herzer filed her first lawsuit, and May 9, when it was dismissed, Viacom shares tumbled 21 percent while CBS shares rose 10 percent. But analysts mostly blame other catalysts for Viacom's woes, including flops such as Zoolander 2 and Whiskey Tango Foxtrot at Paramount and declining viewership at MTV and Comedy Central. "There's animosity between Shari and Philippe, and if she wants him out, she could do it through the trust," says Eric Jackson, managing director of investor SpringOwl Asset Management.

Dauman recently extended his contract through 2018 and would get an estimated $100 million if forced out. "She'd be willing to pay it," says Jackson of Shari. "Sumner Redstone is a sideshow. Philippe is the cause of poor morale for Viacom investors and employees."

Jackson also notes that shares of CBS and Viacom both fell more than 2 percent after Herzer's lawsuit in L.A. Superior Court was tossed, even though the S&P 500 was up slightly. "It was a knee-jerk reaction because there was no determination whether Sumner is mentally competent, so it's status quo," he says.

The judge threw out the first lawsuit after listening to Sumner Redstone — through an interpreter because his speech is slurred — repeatedly call Herzer a "f—ing bitch." The latest lawsuit alleges Shari Redstone spread false rumors about Herzer.

But Shari Redstone shows no signs of backing down, saying: "Promptly after her significant loss in court today, Herzer continued her baseless attack against the Redstone family with a second lawsuit. It is total fiction and continues to speak volumes about Herzer's motivation and character."

This story first appeared in the May 20 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.