June 14 (Bloomberg) -- Tribune Co.'s second-largest shareholder, the Chandler family trusts, called for a breakup of the company including a spinoff of television stations and a possible sale of newspapers to bolster the stock price.

Tribune, the second-largest U.S. newspaper publisher, should explore the sale of the entire company if the parts can't be separated by year-end, the trusts, representing the family that founded the Los Angeles Times, said in a regulatory filing today.

``Prompt and meaningful strategic action is required,'' the trusts said in a letter to Tribune's board of directors. ``The gravity of management's failure to address fundamental strategic issues is apparent from the precipitous decline in stock value.''

Tribune shares have plunged 38 percent since the start of 2004 as advertising growth in newspapers and broadcasting slowed and consumers defected to the Internet. The company finds itself on the same course that led Knight Ridder Inc. into the arms of a suitor. McClatchy Co. is buying the No. 4 U.S. newspaper publisher for $4.5 billion and selling off papers including the Philadelphia Inquirer.

Tribune's plan to bolster the stock by buying back $2 billion of shares, or 25 percent of its stock, doesn't address the ``real business issues'' the company faces, the Chandlers said in the filing with the U.S. Securities and Exchange Commission. The trusts said they won't tender shares as part of the repurchase.

Shares of Tribune, which also owns the Chicago Cubs and TV stations in Chicago, New York and Los Angeles, rose 89 cents, or 2.9 percent, to $31.94 at 4 p.m. in New York Stock Exchange composite trading. They have gained 5.6 percent this year.

Breakup Plan

The Chicago-based company would be worth more than $35 a share if sold in a leveraged buyout, the Chandlers said, citing inquiries from unidentified private equity companies. Analysts estimate a breakup value of $42 to $46 a share, they said. The Chandlers own about 12 percent of Tribune's stock.

Tribune's strategy of cross-ownership of newspapers and TV stations in big U.S. markets ``has failed,'' the Chandlers said in the letter. They called for separation of the newspaper business from TV broadcasting, with a private equity firm taking a stake in the television company. The board should consider selling some newspapers or the company as a whole.

The family also asked the board to appoint a committee of independent directors to oversee a ``thorough review and evaluation'' of management and the strategic issues facing Tribune.

A voice mail left for William Stinehart, the Chandler trustee who signed the letter and a Tribune director, wasn't immediately returned. Tribune spokesman Gary Weitman didn't immediately return a call seeking comment.

Strategic Choices

``These filings indicate that there are voices on the board that value financial flexibility and pursuit of strategic initiatives,'' said Mike Simonton, senior director at Fitch Ratings in Chicago, which has a negative outlook on Tribune debt. ``A spinoff of broadcasting or sale of other assets could also have negative rating implications depending on the allocation of proceeds and debt.''

The Chandlers have the support of some of Tribune's largest shareholders, who are growing impatient with the company's sliding stock price. They're battling the McCormick Trust, Tribune's largest shareholder, which is run by Tribune management. The trust was formed with money bequeathed to charity by the Chicago Tribune's longtime publisher, Robert McCormick.

``Something will be done,'' said John Miller, a money manager at Ariel Capital Management, which owns 10.3 million shares, or 3.4 percent, of Tribune. ``You have to take a more aggressive strategy. The true value of the company isn't being reflected in the share price.''

Ariel wants Tribune to dispose of the broadcast unit and become a pure newspaper company, Miller said. He spoke before the June 13 letter from the Chandlers was released.

Breakup Value

Tribune's businesses may have a value of about $43 a share when split up, Prudential Equity Group analyst Steven Barlow said in a June 7 note. He rates the shares ``overweight'' and said he doesn't own them.

One obstacle to a breakup is the structure of Chandler family partnerships with Tribune. The family has had ``extensive discussions'' with Tribune management seeking to unwind one partnership is willing to discuss the other.

``We did not seek any advantage for the Chandler Trusts in these discussions,'' the Chandlers said.

The family offered Tribune an option to buy real estate held by one partnership for $150 million less than its appraised value, according to the letter.

`Powerful Assets'

``There's a broad recognition this is a powerful set of assets,'' said Lawrence Haverty, who helps manage $28 billion, including about 4.9 million Tribune shares, at Rye, New York- based Gamco Investors Inc. ``The old-line media companies are realizing they've got assets that if managed correctly can benefit them mightily.''

That formula has been elusive. Revenue fell 2 percent at Tribune last year to $5.6 billion, and analysts expect sales to be little changed this year. Net income, after falling 4 percent last year to $557 million, is set to rise 4 percent in 2006, according to analysts surveyed by Thomson Financial.

The broadcasting division reported steeper revenue declines than Tribune's print unit in 2005. Sales from the broadcast assets slumped 6.1 percent, compared with a 0.8 percent decline for the newspapers.

Tribune Chief Executive Officer Dennis FitzSimons said May 30 he planned to sell assets and trim costs to bolster profit. The company said June 5 it agreed to sell its Atlanta television station to Gannett Co. for $180 million.

FitzSimons also announced the buyback plan, which begins with 10 million shares owned by two foundations. Investors including the Chandler family trusts said they opposed the plan in regulatory filings.

Times Mirror

The $8 billion purchase of Times Mirror in 2000 was the biggest in Tribune's history, which dates back to the 1847 creation of the Chicago Daily Tribune newspaper. Tribune subsequently expanded into broadcasting in 1924 with the start of radio station WGN and bought the Cubs from chewing-gum heir William Wrigley in 1981.

Newspapers and broadcasting became the focus of Tribune's expansion in the 1990s, with the company promoting the Cubs on its Chicago television and radio stations.

The Times Mirror purchase, during a boom year for newspaper advertising, gave the Chandlers three seats on Tribune's 11- member board. When Internet companies cut spending in 2001, advertising sales in newspapers dropped 9 percent.

Industry Pressure

That marked the worst year for the newspaper industry since 1950, according to the Newspaper Association of America, a trade group based in Vienna, Virginia. Advertising sales in newspapers haven't yet reached the $48.7 billion recorded in 2000, the biggest year for print-ad sales, according to the group.

``The whole newspaper industry is under some pressure,'' said Kara Cheseby, an analyst at T. Rowe Price Group Inc. in Baltimore, which is Tribune's fourth-biggest shareholder, with 14.3 million shares, or 4.7 percent. ``There's a lot of disappointment about revenue growth.''

Ad sales for the newspaper industry rose 1.5 percent to $47.4 billion in 2005, the trade group said. That compares with a 5.8 percent gain for total U.S. advertising last year, according to New York-based advertising firm Universal McCann.

Knight Ridder, whose predecessor companies dated back to 1892, put itself up for sale in response to shareholder pressure to boost its share price. In March, San Jose, California-based Knight Ridder agreed to be bought by Sacramento, California-based McClatchy, which in turn sold 11 Knight Ridder newspapers to several buyers.

Shareholders of other newspapers are becoming more active. Morgan Stanley Investment Management Ltd. withheld votes for New York Times Co. directors April 18 to protest that company's reliance on two classes of stock.

Not all investors back a split of the company.

``A lot of these calls to sale are short-sighted,'' said Richard Dorfman, managing director of Richard Alan Inc., a New York-based investment company focused on the media industry. ``These groups are well-positioned to leverage their franchises and brand names to become preeminent providers of information in the digital age.''