Circuit City's

(CC) - Get Report

board delivered on an old promise to shareholders Wednesday, removing barriers to hostile takeover attempts at the company amid a private-equity buying spree.

After years of ignoring shareholders' requests, the company's board agreed last February to remove its so-called poison pill, which limits the number of shares that can be owned by an investor. On Wednesday, the company ordered the redemption of all outstanding preferred-share purchase rights under the company's shareholder rights plan.

"It's a good thing to do," said Colin McGranahan, an analyst with Bernstein & Co. "A lot of shareholders like to see it done.

The company is clearly a takeover candidate, since it's had two offers in two years."

This past February, Boston hedge fund Highfields Capital proposed a $17-a-share leveraged buyout of the struggling consumer electronics retailer, which was later rejected by the company. That followed a proposal in 2003 from the Mexican billionaire Carlos Slim, whose offer to buy Circuit City for $8 a share was also rejected.

Amid allegations that the company is underperforming, the company's board of directors has gotten increasingly involved with management in terms of its strategic vision for the company.

This latest effort to motivate management completes a "carrots and sticks" approach adopted by directors. On the one hand, Circuit City's managers have been promised stock incentives if they achieve the goal of 4% operating margins. On the other hand, removing the shareholders rights plan raised the possibility of a buyout.

"Essentially, the board is saying, 'Either you guys are going to make some progress on margins, or potentially, you'll get bought, there won't be any protection and you'll all get fired,'" McGranahan said. "Meanwhile, shareholders are saying, 'Look, this is an underperforming company, so you guys need to remove that protection so that if you guys can't fix it, someone can come in and buy you and make us shareholders better off.'"

Shares of Circuit City closed down 23 cents, or 1.5%, to $15.35.