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Tribune Company’s $2bn share buy-back took another hit on Thursday when Moody’s Investors Service lowered the media group’s debt rating to junk, citing concerns about the transaction.

Moody’s action comes a day after the release of a letter from the Chandler family, Tribune’s second-largest shareholder, in which they derided the buy-back plan as a “financial device” and instead called for a break-up of one of the most influential US media groups.

The buy-back was announced by management two weeks ago as a way to assuage investors, who had suffered through a 38 per cent decline in the company’s share price since 2003. Under the plan, shareholders have the opportunity to tender their shares to the company until June 26 at a top price of $32.50.

However, the transaction has become a key battleground in Tribune’s fight for control of the company with the Chandler family.

The family has argued that a more radical restructuring of the company would create more value for shareholders.

In their letter, which was sent to Tribune’s board of directors, they called for management to separate the company’s newspapers – including the Los Angeles Times and Newsday – from its stable of television stations. They said if the break-up did not occur by the end of the year, Tribune should consider an outright sale of the group.

Tribune shares, which have rallied in recent days, gained 24 cents to $32.18 in midday trading on Thursday. In a note to investors, Credit Suisse predicted that the Chandlers’ moves had increased the likelihood of a restructuring that could give the shares a “significant” boost.

Although the newspaper industry has been dogged by concerns about sluggish advertising and new competition from the internet, analysts believe that its 11 papers would attract significant interest – either from other newspaper groups or private equity funds.

“Tribune’s papers would be attractive to any number of newspaper companies,” said John Morton, a newspaper analyst.

The Los Angeles Times has previously drawn expressions of interest from a number of wealthy Californians, including David Geffen, an entertainment mogul, and Ron Burkle, an investor. Some of Tribune’s other papers have less cachet, but they are in fast-
growing markets such as Orlando and Fort Lauderdale.

The prospects for a sale could be boosted by the recent experience of Knight Ridder, the second-largest US newspaper chain, which was put on the block this year after pressure from its largest shareholder. Although the company’s 31 papers were broken up, they ultimately fetched higher multiples than many analysts had expected.

The Chandlers became major Tribune shareholders in 2000, after it acquired the Times-Mirror group that they controlled. The deal’s proponents argued that owning both newspapers and television broadcasters in major media US markets, such as New York, Los Angeles and Chicago, would increase growth in both types of assets.

The dispute about the company’s structure and strategy has been complicated by the existence of two trusts jointly owned by Tribune and the Chandler family. These were created at the time of the sale to limit tax considerations.

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