Circuit City has been struggling lately, feeling the effects of stiff competition from electronics specialist Best Buy, as well as discounters such as Wal-Mart. Comp sales for its latest fiscal quarter (ended November 30, 2004) decreased 4.3%, and the company's market share has been slipping for several years.

The Highfields proposal, contained in a letter dated February 11, was made public by Circuit City this morning. Share prices in the company immediately shot up (as of mid-day Tuesday) as high as $17.25 on trading volume of about six times the daily average of the last three months, possibly indicating that the market thinks an even better offer is in the works. Other investors may be interested because the company is known to have relatively high cash reserves, and relatively low debt.

Neither party would comment beyond their statements, though Circuit City did publish Highfields' letter in toto. "Though some steps have been taken to address the company's operating performance and suboptimal capital structure, we are nevertheless disappointed that management has been unable to move more aggressively," wrote Jonathon S. Jacobson and Richard L. Grubman, two Highfields managing directors. "…we attribute this partially to the demands and scrutiny that come with being a public company and partially to the company's historical inability to react to the increasing competitive nature of the business."