Pier 1 Imports, Inc. (NYSE:PIR) revealed today in a 13D filing with the SEC that Jakup a Dul Jacobsen and Lagerinn ehf now hold 9.82% of the company. The filing also revealed an even more interesting fact - these two parties entered a confidentiality agreement with the company, during which they will obtain "evaluation material":

"On September 19, 2006, Lagerinn ehf ("Lagerinn") and the Issuer entered into a Confidentiality Agreement (the "Confidentiality Agreement"), a copy of which is attached hereto as Exhibit G. Pursuant to the terms of the Confidentiality Agreement and in connection with Lagerinn's consideration of a possible negotiated transaction with the Issuer, the Issuer agreed to make available to Lagerinn certain Evaluation Material (as defined in the Confidentiality Agreement)."

It is worth noting that this group of investors is the same one that bought Pier 1's England subsidiary back in March of this year for $15 million. The fund also has close ties with related companies, including Linen N' Things, Cost Plus, and others. These two facts have led to investor speculation that Pier 1 may be a potential buyout or merger target, either by the fund itself or one of these related companies.

The company has been hurting ever since late 2003 when it began its decline from $25 down to its current levels around $7-8 per share. With a market cap hovering right around the company's enterprise value - the stock is decently valued, with around $1.72 per share in cash. Although the company has poor operating margins and six straight quarters of losses, it's brand and scale might make it a potentially valuable aquisition for a related retailer. This is all speculation at this point; however, the stock is definitely worth watching as the story unfolds. Pier 1 is up over 8% on the news.

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