Activist investors in Viacom (VIAB) - Get Report  are cautiously optimistic about the possibility that China's Dalian Wanda Group Co. could make a large minority investment in the media giant's Paramount Pictures, arguing that the allocation could help pay down debt and advance the movie studio's interests in China. But that possibility may be extremely remote, depending as it does on the outcome of what is shaping up to be a legal tangle for the ages. 

"It would be difficult to say this is bad for shareholders," said activist Eric Jackson of SpringOwl Asset Management.

Jackson's comments come after reports, citing people familiar with the situation, suggest that Dalian Wanda is in talks with Viacom about buying a 49% stake in the studio while another undisclosed potential buyer is also seeking to make an investment.

The potential deal comes after Jackson in January drafted a 99-page report urging Viacom to shake up its management, replacing CEO Philippe Dauman and consider strategic options including potentially selling a large minority stake in Paramount. Jackson and Mario Gabelli, who owns a 10.2% of the minority Class A common stock, had both suggested that Viacom should consider selling a minority stake to Chinese internet behemoth Alibaba (BABA) - Get Report  as part of a partnership agreement between the two companies.

For Jackson, a sale to Dalian Wanda at the right price could achieve the same goals. Dauman had said previously that he is seeking a transaction that would value all of Paramount at between $8 billion and $10 billion, according to reports. Jackson said that if that is correct it is possibly that Viacom could take home $4 billion after taxes by selling a stake in Paramount. "That valuation is rich relative to other studio transactions," he said. "But the question is how would Viacom spend the money?"

James Dix, analyst at Wedbush Securities, agreed that if the possible Dalian Wanda acquisition meets the criteria Dauman set out that it would "a pretty good deal" for Viacom shareholders, especially if it would be used to pay off debt and strategic development.

Jackson and other investors worry that as Viacom's earnings have dropped as concerns around its debt have increased while the company has spent billions on stock buybacks that haven't helped improve the media giant's share price. Credit rater Moody's in May issued a report noting that its current Baa2 senior unsecured debt rating—two rungs above speculative grade—is based partly upon expectations that the company will use free cash flow and proceeds from asset sales to repay debt. Moody's analyst Neil Begley noted that Viacom made significant shareholder payouts over the last couple of years, while seeing revenues fall and increasing total gross debt by nearly $5 billion from 2011 to 2015.

"I think they will use the proceeds from any stake sale to pay down debt and not for buybacks," said Begley. "If they don't they are risking their rating to come under additional downgrade pressure."

A person familiar with Gabelli also suggested that the deal could be strategically positive if it helps Viacom expand in China. Dalian Wanda had in recent years expanded its movie studio and entertainment acquisitions. It acquired Hollywood film producer Legendary Entertainment in January for $3.5 billion, the studio behind "Warcraft" and "Godzilla." It owns Wanda Cinemas, a cinema operator in China, which has over 1600 screens in 182 cinema complexes in 100 cities.

Jackson contends that the size of the Chinese market for films is "massive" and that successful film studios will need an effective strategy for distributing movies in China to be successful. "The Chinese government favors foreign film studios who have local partners," Jackson said. "Wanda has not been shy about building links around the world and Paramount would benefit from expanding in China."

Jackson notes that even though Legendary Entertainment's "Warcraft" didn't do well in the U.S. it did well in China, with Variety reporting that it grossed "a massive $46 million" in its opening day there. "It used to be that if you wanted to have a hit movie it had to be a hit in the U.S." Jackson said. "But Warcraft bombed in the U.S. and did well in China."

Nevertheless, such a deal faces a vast array of roadblocks before it could be consummated. It comes as a power squabble has emerged over Viacom, which has seen its stock price decline in recent years over struggles with its overall business, including at its networks and Paramount. Viacom shares traded up early Thursday on the news at $45.02 a share. 

Sumner Redstone controls National Amusements Inc., a privately held movie chain that owns a 79.8% stake in Viacom. Through the privately held movie chain, Redstone has taken steps to remove five Viacom board members including Dauman, who had previously been a close confidant and protege of Redstone but the two had a falling out. In addition, a Viacom director filed a Delaware lawsuit to block the ouster of directors from the board.

And Redstone, 93, has come out publicly in May saying that he's against a sale of a minority stake in Paramount. Nevertheless, Jackson contends that the possibility of a Dalian Wanda deal will put pressure on Redstone and Dauman and others to reach a settlement. "It is doubtful that a deal can be consummated if Sumner is opposed to it," Jackson said. "We don't know what Sumner's specific feelings are about a Dalian Wanda deal and we have several board members whose status is up in the air pending a court decision. This will be an impetus to get some of those larger questions settled sooner rather than later."

A partial sale of Paramount would come at a tenuous time for the studio, which continues to struggle at the box office following a succession of underwhelming productions including "Zoolander 2" and "Whiskey Tango Foxtrot."

For the second-quarter, Wells Fargo media analyst Marci Ryvicker said earlier this week that she expects the film studio to post an operating loss of $30 million compared to a gain of $39 million during the same quarter a year ago. Ryvicker downgraded Viacom shares to underperform from market perform.

As for how much a Paramount sale might generate, Wunderlich Securities media analyst Matthew Harrigan put the studio's valuation at just $3.8 billion. That's the same price that Comcast CMCSA agreed in April to pay to acquire DreamWorks Animation.

While Redstone has said he opposes a sale of a minority stake in Paramount, his daughter Shari Redstone has been more circumspect, having not publicly stated her position on such a transaction. Shari Redstone heads the trust that will control both Viacom and CBS when her father dies or judged to be incapacitated.

In recent months, Shari Redstone has met with Wanda officials to talk about global movie distribution. Redstone heads the board of National Amusements, owner of the Showcase Cinema movie chain, which owns more than 900 screens worldwide.

CEO Philippe Dauman disputes that the elder Redstone is able to make a decision regarding paramount, and has asked a Massachusetts court to order an independent examination of Redstone's mental welfare. 

A representative for Shari Redstone had no comment regarding a potential sale of a minority stake in Paramount Pictures. A spokesman for Sumner Redstone couldn't immediately be reached for comment.