A group led by activist shareholder Carl Icahn released a plan yesterday calling for Time Warner to be split into four publicly traded companies, escalating Mr. Icahn’s fight to gain control of the company.

In the packed ballroom of the St. Regis Hotel, Mr. Icahn presented the breakup proposal with a former CEO of Viacom, Frank Biondi, and the chairman of Lazard, Bruce Wasserstein. At the meeting, Mr. Wasserstein said, “There is no compelling reason for the companies of Time Warner to stay together.”

The Icahn group charged that poor management has cost shareholders $40 billion. Mr. Icahn, who with a few partners owns 3.3% of the company, has been urging management to move more quickly to realize shareholder value. Mr. Biondi, whom Mr. Icahn met with over the past few days, would replace Richard Parsons as chief executive if Mr. Icahn should succeed in replacing management.

Time Warner responded to the Icahn proposal in a statement yesterday: “We are on the right path. The company is delivering. Nevertheless, we will study the Icahn/Lazard proposal carefully and thoroughly. … We will have more to say on the specifics of the proposal in due course.”

The company also announced yesterday that it had hired Goldman Sachs and Bear Stearns to help in its fight with Mr. Icahn. The move sets up a public struggle between Mr. Wasserstein of Lazard and two other high-profile investment bankers: the co-chairman of Goldman’s global mergers group, Gene Sykes, and a co-president of Bear Stearns, Alan Schwartz.

Mr. Wasserstein presented Lazard’s 342-page assessment recommending that Time Warner split into four entities: online, cable, publishing, and film and television networks. He said Time Warner management has been too sensitive to short-term market nervousness and to turnover in the executive suite. He characterized the company as lacking in vision and in conviction about how best to grow its businesses.

Mr. Wasserstein also made clear that the interests of Lazard and Time Warner shareholders, including Mr. Icahn, are aligned; Lazard’s fee is tied to the performance of the stock over the next 18 months. The bottom line, Mr. Wasserstein said, is that “shareholders cannot rely on the current approach of management.”

In addition to calling for a breakup, the report, prepared by Lazard, says Time Warner should increase its stock repurchase program to $20 billion. Following this course would, in the view of the investment bank, result in an implied stock price between $23.30 and $26.60, compared to today’s closing price of $18.36.

Notwithstanding the large turnout for the highly anticipated meeting, Time Warner’s stock drifted lower yesterday. The lack of excitement could suggest that investors do not view the stock as significantly undervalued or that they are skeptical that Mr. Icahn will be able to mount any serious challenge to existing management.

Others may doubt the theory that smaller is better. An analyst at S.G. Cowen, Lowell Singer, said, “There is a prevailing belief that the market is not smart enough to value complex organizations. It simply isn’t true.” Mr. Singer points to the breakup of Viacom as proof: The implied ongoing share price today is roughly the same as it was before the split-up of the company.

Lazard faulted management for lacking a long-term strategy, which the report said resulted in insufficient investment in core businesses, underperformance at AOL, mishandling of finances, and an exorbitant cost structure. Specifically, the report criticizes Time Warner’s management for inappropriately paying down debt in a period of low interest rates, which inhibited the company’s ability to make strategic acquisitions, such as MGM and AT &T Broadband, and also encouraged poorly timed divestitures of attractive assets.

Particularly damaging, in the view of the investment bank, have been various missteps at AOL. They charge the company with managing AOL like a “declining annuity.” The unit’s management has not embraced the concept of online advertising, but rather has persisted with a “walled garden” model, charging customers for access. Management was also slow to market a bundled broadband product with Time Warner Cable, has not capitalized on its strength in instant messaging by building a leadership role in VoIP, and has not created or bought proprietary services. The upshot of these miscues has been to allow Google, Yahoo, and others to become major competitors.

The report further savages the company’s “bloated cost structure.” The company, Lazard states, has not only failed to wring any synergies form the combinations of its disparate units, but has ladled on a large corporate overhead burden as well.

Mr. Icahn said his group would announce a proposed slate of directors next week. “Great companies in the media business today need vision,” Mr. Icahn said. He does not think Mr. Parsons will ever break up the company, in part because he “is in love with conglomerates.” He described Mr. Parsons as falling in love with “the view from Columbus Circle,” and likened that fixation to Alec Guinness’s devotion to building the Bridge over the River Kwai. According to Mr. Icahn, both are, in the end, futile.