Wall Street is watching the legal tug-of-war between CBS Corp. and controlling shareholder Shari Redstone with a mix of amazement and concern about the potential for long-term damage to CBS’ fortunes.

Both sides have accused the other of recklessly disregarding their fiduciary duty to CBS shareholders and the health of the company. CBS shares were down 4% on Thursday after a judge denied CBS’ request for a temporary restraining order against Redstone’s National Amusements Inc. (NAI), the holding company that controls CBS and Viacom.

The spectacle of the legal battle between CBS and NAI has put the brakes, for now, on the merger talks between CBS and Viacom. The opposition of CBS’ board and its chairman-CEO Leslie Moonves to a reunion with Viacom is the crux of the dispute. Redstone has said she sees value in bringing the two companies back together to bulk up at a time of consolidation in media and entertainment.

Mario Gabelli, whose Gamco Investors holds 8.5% of the voting power in CBS, would like to see CBS and Viacom brought together for the sake of giving both companies greater scale around the world. Now that the fight has gone nuclear in public, there’s a real question about whether Moonves will leave or be forced out of his role at the company.

“Hopefully they can figure out a way to come to some agreement,” Gabelli told Variety. “I think my shareholders are better off having them combined.”

Gabelli emphasized his respect for the track record of Moonves and CBS chief operating officer Joe Ianniello. The question of management for the combined company has been at issue as CBS has pushed for its top duo to lead the company without a major role for Viacom CEO Bob Bakish. Gabelli said Bakish has done a good job in his 18 months at the helm of Viacom.

“I don’t want to lose Les and I don’t want to lose Bob,” Gabelli said. “And I like Joe. This is a problem.”

Like Gabelli, other media biz watchers urged the sides to find a route to settling their differences or at least reach a detente for the sake of shareholders.

Doug Creutz, analyst with Cowan & Co., said wrote in a note Thursday that he interpreted the judge’s ruling on the temporary restraining order as sending the message: “sit down and discuss this like adults.”

Todd Juenger of Bernstein & Co. reiterated his view that CBS’ litigation strategy by CBS Corp. ensures that a deal with Viacom is off the table for the foreseeable future. Now that CBS is on record has having its special committee unanimously vote against the merger, NAI would be under extreme scrutiny if it tried to force such a combination, which NAI has repeatedly said it will not do.

“Given NAI’s promise, and fiduciary duty, to act in the best interest of CBS shareholders, we expect (CBS and NAI) should make every effort to find a way to continue working together,” he wrote. “In the event they cannot (by either party’s decision), to the extent that leads to the conclusion that the best future for the CBS Corporation, and its shareholders, is likely to be acquired/combined with a larger platform company, then the exit of CBS management wouldn’t matter, anyway.”

CBS shares were down 4.2% to $51.56 in trading Thursday. On Monday, after CBS’ lawsuit was filed, Juenger upgraded his CBS rating to outperform with a target price of $65 and he affirmed that rating again on Thursday.

(Pictured: Leslie Moonves and Shari Redstone)