CVS Health Corp. said it was spending about $1.9 billion to buy Target Corp.’s health and clinic businesses, expanding the drugstore chain’s reach as the baby boomer generation continues to age.
The Woonsocket, R.I., company is acquiring more than 1,660 pharmacies at Target stores in 47 states. CVS Health plans to continue operating the pharmacies inside Target stores and will open branded pharmacies at new Target stores offering those services.
CVS Health said the deal would extend its reach into new markets, including Seattle, Denver and Portland, Ore. The company said the acquisition would result in “significant sales and prescription volumes.”
Consolidations of similar businesses tend to raise fears of price increases because of reduced competition.
But the two companies said that Target customers would benefit from price advantages, particularly for lower cost generic drugs, brought by CVS Health’s size, giving it the ability to negotiate better with suppliers.
Larry Merlo, CVS Health’s chief executive, said during a conference call Monday with analysts that the deal “is not simply about a pharmacy retailer operating pharmacies for others.” Instead, he said, the acquisition creates opportunities “to improve access, improve health outcomes and, at the same time, reduce the overall cost of care.”
Target Chief Executive Brian Cornell told analysts that CVS Health’s operations “bring scale, they bring cost efficiency, they bring expertise that we just could not bring to a space where we are operating as a sub-scale player.”
As part of the deal, Target’s almost 80 clinic locations will be re-branded as MinuteClinic, with CVS opening 20 new clinics within three years of the deal’s close.
CVS Health and Target also plan on developing five to 10 smaller-format stores over a two-year period; each store would be branded as TargetExpress, with a CVS pharmacy tucked inside.
CVS Health is planning to finance the deal, which requires regulatory approval, by taking on additional debt. The company said the timing of the deal’s close is uncertain.
Last month, CVS Health announced plans to spend $10.4 billion to buy Omnicare Inc., a leading provider of pharmacy services for long-term care facilities.
Shares of CVS Health rose 36 cents, or 0.4%, to $102.58 on Monday. Target shares increased 98 cents, or 1.2%, to $80.45.