Billionaire investor Carl Icahn (search) Tuesday blasted Time Warner Inc. (TWX) for selling assets on the cheap and spending extravagantly on its new headquarters as he stepped up pressure on the media conglomerate to shake up the board of directors.

In an open letter to the company's shareholders, Icahn criticized past moves at Time Warner, such as selling Warner Music Group and Comedy Central at discounted prices and its failure to acquire MGM, according to a filing with the Securities and Exchange Commission (search).

"Unless this legacy of poor decision-making is fully recognized and the Board is held accountable, the dismal record of mistakes and inaction will continue to the detriment of shareholders," the letter said.

Icahn, who is backed by three hedge funds that hold a combined 2.8 percent stake in Time Warner, also reiterated his recommendations that the company initiate a $20 billion share buyback and spin off 100 percent of its Time Warner Cable unit.

Time Warner Tuesday issued a statement saying its immediate priorities are to "intensify and accelerate" AOL's transformation from a subscriber-losing dial-up service to an online advertising-driven free Web site, and to "refine our capital allocation" to boost returns.

"The management team has proven its commitment to shareholders and its openness to constructive ideas from knowledgeable people," Time Warner said, adding that it would update shareholders in coming weeks.

"We will proceed on our course, committed to increasing the value of this company and delivering a highly competitive return for all of its shareholders," Time Warner said.

The company has already pledged to buy back up to $5 billion in stock and spin off a 16 percent stake in the cable company.

Over the last three years, Time Warner has been credited with cutting its net debt to about $13 billion from as much as $30 billion in early 2003. It also settled lengthy government probes and shareholder suits following the merger of Time Warner with America Online.

Chief Executive Richard Parsons (search) has said he would consider spinning off a larger stake in its cable unit over time, but he believes the current 16 percent plan is appropriate.

Fulcrum Global Partners analyst Richard Greenfield said the pressure on management and discussion of an alliance between AOL and Microsoft Corp.'s (MSFT) MSN would help boost Time Warner shares near-term.

Time Warner and Microsoft have been discussing ways to combine their Internet assets, including the possibility of an investment by the software giant.

"There are a lot of moving pieces right now," Greenfield said. "I think all of them bode well for Time Warner shares in the near term."

Greenfield also said Time Warner could increase the size of its share buyback. "It sounds like management is committed to increasing the level of capital return," he said, "and I would be surprised if the buyback didn't increase notably over the course of the next couple of months."

Icahn, known as a corporate raider and for his agitating tactics at Blockbuster Inc. and Kerr-McGee Corp. , revealed his interest in Time Warner in September and indicated he would seek a seat on the company's board.

In Tuesday's letter, Icahn said Time Warner's "cardinal sins" date back to its merger with AOL, which led to the loss of more than 75 percent of market value over two years.

He said 12 of the 15 current Time Warner board members, including Parsons, supported the merger and questioned whether they should still be "steering the corporate ship."

When pointing out what he calls past failures at Time Warner, Icahn also criticized what he called its "bloated" cost structure, saying his coalition intends to hire a consultant to analyze and compare the company's costs with those of its peers.

Icahn concluded that Time Warner's past missteps indicate the need for new management.

"But whether or not you agree with our proposals," the letter said, "we believe the simple truth is that Time Warner is a company sorely in need of new shareholder representation on the Board."

Time Warner shares were down 3 cents to $17.98 in morning New York Stock Exchange trading.

(Additional reporting by Karey Wutkowski in Washington, D.C., and Michele Gershberg and Derek Caney in New York