Following news of Restoration Hardware Holdings, Inc.'s RH possible acquisition of Williams-Sonoma, Inc. WSM, shares of both companies are trading higher.
"Today by no means represents the first time that the market has speculated that RH and WSM could combine," said Oppenheimer analyst Brian Nagel. "As we have indicated in the past, at least on paper we see a number of reasons that such a combination could make sense. "
The firm maintains skeptical of the acquisition, however, and recommends that investors "sell into today's strength."
Adding Restoration Hardware to the company portfolio would provide Williams-Sonoma with a "new, higher-end" brand, according to the analyst, who added that Restoration Hardware could benefit from the existing supply chain infrastructure that Williams-Sonoma has to offer.
"All that said, we have heard for a long time from managements that a history of "bad blood" and an entrenched competitive spirit between the chains is apt to prevent any type of strategic combination," said Nagel.
Oppenheimer maintained a Hold rating for Restoration Hardware and a Buy for Williams-Sonoma.
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