CVS Health Corp. will pay $1.9 billion to buy Target Corp.'s pharmacies and clinics, expanding its reach by adding stores bearing its name inside the U.S. retail chain.
CVS, which already has 7,800 drugstores, will acquire Target's more than 1,660 pharmacies across 47 states, renaming them as CVS/pharmacy, the companies said today in a statement. All new Targetstores with pharmacy services will include a CVS/pharmacy.
CVS Chief Executive Officer Larry Merlo is spearheading a deeper push into health care, striking the Target deal less than a month after agreeing to acquire nursing-home pharmacy operator Omnicare Inc. in a transaction valued at $12.7 billion. The Target pharmacies bring the company to new markets including Seattle, Denver and Portland, Ore., and will help it reach a goal of operating 1,500 medical clinics by 2017.
The move comes after CVS stopped selling tobacco products in October, and began leaning more on pharmacy services, which brought in 60% of sales last year, and in-store clinics to make up for the loss of revenue.
For Target, the sale furthers a strategy to retrench the company under CEO Brian Cornell. After taking the reins in August, he moved to shut down the company's Canadian stores -- less than two years after they were opened -- and slashed jobs at its headquarters in Minneapolis.
Mr. Cornell is trying to regain Target's cachet -- from the days when it was called "Tar-zhay" with a mock French accent -- by refocusing on what it does best. The idea is to entice shoppers with exclusive merchandise, such as this year's Lilly Pulitzer collection, and get them to spend more when they visit stores. Operating its own pharmacies didn't fit into that strategy.
BBDO is CVS's creative agency of record, and Target works with a mix of agencies including Deutsche LA, and LatinWorks, its Hispanic shop.
Target has almost 80 clinics that will be rebranded as MinuteClinic, and CVS will open as many as 20 new clinics in Target stories within three years of completion of the deal. CVS already has almost 1,000 clinics. CVS and Target also said they would develop five to 10 small stores over two years, to be called TargetExpress. Each will include a CVS/pharmacy.
CVS will fund the purchase with debt and reduce its share repurchase target for this year to $5 billion from $6 billion. The acquisition will generate "significant sales and prescription volumes," as well as more operating profit, it said.
Target's proceeds from the deal will be about $1.2 billion after taxes. It will use the money for "capital priorities, including share repurchase."
-- Bloomberg News with contributions from Ad Age staff --