By Jessica Toonkel and Lisa Richwine
(Reuters) - Lawyers acting for Sumner Redstone have reached a preliminary settlement with an ex-girlfriend over a lawsuit that challenged the 92-year-old media mogul's mental competency, a person familiar with the situation said on Thursday.
The settlement may avoid further embarrassment for the ailing Redstone and his family as more details from the case were made public. A trial also would have brought to light details about the former girlfriend that would have come out in depositions, according to a separate source.
But the settlement also avoids a trial and verdict that would have provided investors some clarity about Redstone's health and the future of the two media companies he controls, Viacom Inc (VIAB.O) and CBS Corp (CBS.N), after he dies.
Under the settlement, a local, neutral third party will oversee the day-to-day care of Redstone, according to the sources, who asked to remain anonymous because they are not permitted to speak to the media.
Other details of the settlement could not be determined.
A judge is expected to review it for approval by the end of this week.
Redstone's attorneys were not immediately available to comment. The lawyer for the ex-girlfriend who brought the lawsuit, Manuela Herzer, declined to comment.
Herzer was challenging her removal last year as Redstone's health-care agent in favor of Viacom Chief Executive Philippe Dauman, saying Redstone was not mentally competent to make that decision.
In the lawsuit, she declared that Redstone was a "living ghost." Redstone's attorneys argued he was fully aware of his actions. Herzer had been set to inherit $70 million before Redstone, a multi-billionaire, changed his estate plan in October, according to court documents.
Earlier this week, Redstone gave his daughter, Shari Redstone, authority over the health-care directive, along with a friend of the family, replacing Dauman and Viacom's chief operating officer, Thomas Dooley, according to one of the sources.
Dauman said last month at the Viacom annual shareholder meeting in Miami that he did not choose to be Redstone's health-care agent..
Redstone, who turns 93 next month, has not appeared at an annual shareholder meeting or spoken on investor calls for Viacom or CBS since 2014. In February, he stepped down as executive chair of both CBS and Viacom.
CBS shares were down 2.3 percent on Thursday, while Viacom shares were down almost 3 percent. Viacom's stock is down more than 16 percent since the lawsuit was filed on Nov. 25.
Activist investor Eric Jackson, who has called for management changes at Viacom, said he was disappointed about the likely settlement because it meant continuing uncertainty.
If Redstone had been found incompetent by a judge, it could have triggered a seven-person trust, which includes Shari Redstone and Dauman, to take over his controlling stake in CBS and Viacom.
"If there had been a trial and he was declared mentally incompetent, that could have at least forced change at the top of Viacom," Jackson said. "With a settlement, it's conceivable that we could continue with the status quo even if he is incapacitated, and shareholders will never know."
(Reporting By Jessica Toonkel in New York and Lisa Richwine in Los Angeles)