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CVS Health to buy Target’s pharmacy business

WOONSOCKET, R.I. – CVS Health plans to acquire Target Corp.’s U.S. pharmacy and retail health clinics businesses for about $1.9 billion.

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WOONSOCKET, R.I. – CVS Health plans to acquire Target Corp.’s U.S. pharmacy and retail health clinics businesses for about $1.9 billion.

CVS said Monday that it will buy more than 1,660 Target pharmacies across 47 states and operate them through a store-within-a-store format and that every new Target store that offers pharmacy services will include a CVS/pharmacy.

Plans call for Target’s nearly 80 clinics to be rebranded as MinuteClinic and CVS to open up to 20 new clinics in Target stores within three years of the deal’s closing, the companies said.

In addition, CVS and Target plan to develop five to 10 small-format stores — branded as TargetExpress and including a CVS/pharmacy — over two years after the deal closes, which is expected near the end of this year.

CVS said it plans to finance the deal through debt and to reduce its 2015 share repurchase target to $5 billion from $6 billion.

CVS and Target noted that the deal brings together two leading retailers with complementary strengths, brands and cultures.

For CVS Health, the transaction adds a new retail channel to reach more patients with its range of retail pharmacy, pharmacy benefit management and walk-in health clinic services, providing convenient options for consumers. Geographically, the deal also will expand CVS’ retail presence in new markets, such as Seattle, Denver, Salt Lake City and Portland, Ore. The company said the deal also enables Target to bolster its wellness offering.

“This strategic relationship with Target supports the highly complementary customer base, brand and culture we share,” CVS Health president and chief executive officer Larry Merlo said in a statement. “When we introduced the new name for our company, CVS Health, we began a new era of growth with a broader health care focus and an appreciation of the rise of health care consumerism with consumer choice and accountability growing. This relationship with Target will provide consumers with expanded options and access to our unique health care services that lead to better health outcomes and lower overall health care costs.”

After the deal is finalized, Target customers will have access to CVS Health’s pharmacy care programs and medical clinic services. Its pharmacy programs — including Pharmacy Advisor, Specialty Connect and Maintenance Choice — are designed to help patients improve medication adherence via more convenience and enhanced pharmacy care counseling. And with MinuteClinics in Target stores, Target customers will have access to MinuteClinic’s wide array of primary care and preventive health care services.

Meanwhile, CVS Health customers will gain the option of an expanded, one-stop Target shopping experience, including apparel, home, fresh food and more, when seeking health care services, the companies noted.

“By partnering with CVS Health, we will offer our guests industry-leading health care services and, at the same time, sharpen our focus on elevating the way we deliver wellness products and experiences to our guests,” stated Target chairman and CEO Brian Cornell.

The two companies added that the deal unlocks future joint development opportunities. Together, Target and CVS Health will evaluate and select locations best-suited for small-format Target stores with a CVS/pharmacy inside.

“We operate in a rapidly changing health care and regulatory environment,” noted Merlo. “This requires companies like CVS Health to continually innovate, providing additional points of access, lowering costs and improving quality for both consumers and payors.”

CVS and Target said in-store changes will be made over a period of several months after the transaction closes, and they aims to provide the smoothest possible transition for all pharmacy and clinic patients. CVS said it plans to offer the approximately 14,000 in-store Target health care professionals comparable positions as part of the transition. Target also said that after the deal closes, it will evaluate the business impact and related support needs at its headquarters locations.

Mark Miller, an analyst at William Blair & Co., noted that the deal stands to add about $4.2 billion in revenue and 96 million prescriptions for CVS Health.

“The transaction enhances CVS Health’s presence in new markets and adds a new retail channel — the one-stop shopping destination — while making the company the market share leader in the U.S. prescription drug market,” he wrote in a research note released Monday.

Despite the deal’s strong potential benefits, the transaction presents some risks for both companies, Miller added.

“While there could be some initial disruption in Target stores with the transition, operational risk rests primarily with CVS Health. In addition, CVS might suffer some cannibalization and incremental front-end sales loss as pharmacy customers may be more inclined to use the everyday shopping experience at Target while making their pharmacy trip,” he explained. “For Target, we highlight that co-branded arrangements in stores often have not lived up to their expectations, although we view this decision positively as the company was not adding a lot of value in the pharmacy business.”

*Editor’s Note: Article updated with analyst comment.

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