PW Eagle Incorporated (NDAQ:PWEI) manufactures and distributes polyvinyl chloride pipe and fittings and polyethylene pipe and tubing products used for turf and agricultural irrigation, natural gas transmission, water wells, fiber optic lines, electronic, and telephone lines. The company has triped in price since mid-2005 as a result of a restructuring, refinancing, and strong operating results. However, their strong balance sheet and cash flows attracted some unwanted attention...

The company revealed in a 13D filing last week that activist hedge fund Pirate Capital had increased its stake in the company from 17% to just over 21%. Pirate also bought almost $300k worth of additional shares two days later. Why? In their original SC13D filing on March 10th, Pirate said:

"The Reporting Persons originally acquired Shares for investment in the ordinary course of business because they believed that the Shares, when purchased, were undervalued and represented an attractive investment opportunity. The Reporting Persons intend to encourage the Issuer to actively pursue strategic alternatives to maximize shareholder value, including the potential sale of the company."

In the same filing, Pirate also announced its intention to nominate its own directors to the company's board during their 2006 annual shareholders meeting. Moreover, they demanded to see the company's books and shareholders on record - a move which usually indicates that the fund is going to solicit a proxy battle. This move was supported by another activist hedge fund - Caxton Associates - who also has a large interest in the company. PW Eagle, eager to avoid a proxy battle, quickly agreed to expand the board of directors and give both hedge funds a seat on the board. This immediately resulted in a special committee appointed to "explore strategic alternatives" for the company, headed by Pirate's own Zachary George. And it was this committee that likely pressured the company into instituting the $40m share buyback, which was recently announced in the company's 10Q filing with the SEC.

Is this buyback all that the hedge funds were seeking or is there something more? Many traders are speculating that something else is in the works. Caxton recently acquired a lot of call options, which are instruments that make the most money on short-term price movements, not long term investment. This, combined with Pirate's 5% increase in ownership, indicates a lot of conviction by those closest to the company. What exactly will happen remains to be seen, but one thing is certain - PW Eagle is definitely a stock to keep an eye on.

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