Circuit City to explore unit sale in cost-cutting

(Recasts with details, stock move, NEW YORK dateline)

NEW YORK, March 28 (Reuters) - Consumer electronics retailer Circuit City Stores Inc. CC.N said on Wednesday it will explore a possible sale of its Canadian unit InterTAN Inc. and replace 3,400 employees with lower-paid workers in a cost-cutting move, sending its shares up 2.5 percent.

The company, which is in the midst of a multiyear effort to revamp its business and win back market share from larger rival Best Buy Co. Inc. (BBY.N), also said it signed a seven-year deal worth $775 million with International Business Machines Corp. (IBM.N) to outsource its information technology infrastructure services.

The company said the deal will begin to save it money in fiscal 2008 and reduce IT infrastructure expenses by more than 16 percent over the length of the contract.

The company also said that about 50 of its 130 internal IT infrastructure workers will transition to jobs with IBM and remain on-site serving its contract, while the other 80 employees will support the transition in the short term.

Circuit City, which is based in Richmond, Virginia, also said it expects to record pre-tax expenses of about $144 million in the fourth quarter related to store closures, goodwill impairment and other restructuring activities.

Circuit City shares were up 47 cents at $19.35 on the New York Stock Exchange.

(Additional reporting by Ankur Relia and Amitha Rajan in Bangalore)

((Reporting by Martinne Geller, editing by Dave Zimmerman; Reuters messaging: martinne.geller.reuters.com@reuters.net; martinne.geller@reuters.com; +1 646 223 6023)) Keywords: CIRCUITCITY INTERTAN/

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