Struggling electronics chain Circuit City yesterday announced that it received an unsolicited acquisition offer for all of its outstanding shares for $17 a share or $3.25 billion from hedge fund manager Highfields Capital Management.

Circuit City shares rose more than 16% or $2.30 to close at $16.53 in New York Stock Exchange trading on investor speculation there may be a bidding war. Circuit City has reported losses for each of the last three quarters.

In a letter dated February 11 to Circuit City made public by the chain yesterday, Highfields Capital fund managers, Jonathan Jacobson and Richard Grubman, wrote, “Though some steps have been taken to address the company’s operating performance and suboptimal capital structure, we are nevertheless disappointed that management has not been able to move more aggressively.”

Messrs. Jacobson and Grubman said they believe Circuit City would be better able to compete as a private entity.

“Such a transformation would eliminate the public-company transparency into the Company’s operating strategy that is uniquely damaging in a highly competitive industry where Circuit City is going head-to-head with a tough and entrenched rival,” said the letter referring to no. 1 electronics retail Best Buy.

Messrs. Jacobson and Grubman also voiced concerns in a face-to-face meeting with Circuit City management the previous week, according to Circuit City’s statement. Circuit City said it “will carefully evaluate the Highfields proposal and other opportunities available to the company” without naming what those opportunities may be.

Circuit City has retained Goldman Sachs as its financial adviser. Highfields Capital has retained UBS Investment Bank.

Boston-based Highfields Capital manages more than $6.5 billion and reportedly owns 6.7% of Circuit City. It is known for being a vocal advocate for shareholders. Richmond, VA-based Circuit City, which has a chain of more than 635 stores, lost $89.3 million on $9.75 billion in sales last year.

Last month, the company reported that holiday sales were below expectations because of competitors’ aggressive promotions. Domestic sales for December were down 3.7% to $1.65 billion compared to $1.71 billion in sales for December 2003.

“Customer traffic was below last December’s levels,” said the chief executive, Alan McCollough, in a statement at the time. However, the company is expected to report earnings of $82.5 million for 2004, and profits are expected to rise by an average 33% over the next two years, according to Thomson First Call. For its part Best Buy said Monday it has signed lease agreements for 28 new stores in 18 states as part of a plan to open as many as 60 outlets in its fiscal year starting February 27.

Best Buy’s stock rose 82 cents yesterday to close at $55.50 on the New York Stock Exchange. Circuit City is countering Best Buy’s moves by remodeling stores and planning to open or relocate as many as 40 stores during its next fiscal year. Besides stiff competition from Best Buy and discounters such as Wal-Mart, Circuit City has reportedly also been plagued by poor store locations and staffing problems.

A Circuit City spokeswoman declined comment. A call to Highfields Capital was not returned.