(Bloomberg) 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 Targets more than 1,660 pharmacies across 47 states, renaming them as CVS/pharmacy, the companies said today in a statement. All new Target stores 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, Oregon, and will help it reach a goal of operating 1,500 medical clinics by 2017.
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 companys Canadian stores less than two years after they were opened and slashed jobs at its headquarters in Minneapolis.
Cornell is trying to regain Targets 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 years Lilly Pulitzer collection, and get them to spend more when they visit stores. Operating its own pharmacies didnt fit into that strategy.
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 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.
The deal may reduce CVSs adjusted earnings per share in 2016 by about 6 cents and boost earnings by about 10 cents in 2017 and at least 12 cents in 2018 and beyond, the company said. Thats based on an assumption that the purchase is completed near the end of this year.
Targets proceeds from the deal will be about $1.2 billion after taxes. It will use the money for capital priorities, including share repurchase.
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.
Register or login for access to this item and much more
All Employee Benefit Adviser content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access