Target will sell its pharmacy and clinic businesses to the drugstore chain CVS Health for about $1.9 billion in a deal that combines the resources of two retailers seeking to polish their health care reputations.
The acquisition allows CVS Health to reach more patients and expand its in-store MinuteClinic brand, which it has been growing aggressively for the past several years. It also gives the nation’s second-largest drugstore chain a retail presence in new markets like Seattle, Denver, and Salt Lake City.
Target customers, in turn, will gain access to CVS Health Corp.'s pharmacy care programs that help them manage their prescriptions, find low-cost generic drugs and buy specialty medications, a rapidly growing slice of the pharmaceutical market.
Drugstore chains, grocers and big retailers like Target and Wal-Mart have all pushed deeper into customer health in recent years, in part to serve the aging baby boom generation and the millions of uninsured people who are expected to gain coverage under the federal health care overhaul. They’ve added walk-in clinics to their stores and, in some cases, expanded the care those clinics provide to include monitoring chronic conditions like diabetes.
Retailers also are putting more health care products on their shelves.
Drugstores have long-since slowed their push to grow by building new stores and shifted to expanding what their existing stores offer. That includes groceries and other non-pharmacy items, aside from health care products, as they try to attract customers who are looking to buy more in a single stop.
CVS Health gained national attention last year when it announced it would pull tobacco from its store shelves as part of a push to improve its reputation as a health care provider. The drugstore chain also changed its name to CVS Health from CVS Caremark last year as part of its increased focus on health.
Target had already quit selling tobacco in 1996.
The deal announced Monday includes more than 1,660 pharmacies in Target stores that will be branded as CVS/pharmacy. The agreement also calls for new Target stores to include a CVS/pharmacy if they are going to offer pharmacy services.
Target Corp.'s nearly 80 clinic locations will be rebranded as MinuteClinic. CVS Health will also open up to 20 new clinics in Target stores within three years of the deal’s closing.
In addition, Woonsocket, Rhode Island-based CVS Health and Minneapolis-based Target plan to develop five to 10 smaller stores over two years. The stores will be branded as TargetExpress and include a CVS/pharmacy.
Target has nearly 1,800 stores and also sells products through its Target.com website. The retailer, which caters to customers who have a little more money than Wal-Mart shoppers, is trying to reinvent itself as a more nimble and innovative company and is trying to reclaim its reputation as a cheap chic retailer under CEO Brian Cornell.
It expects after-tax proceeds of about $1.2 billion, which it plans to use buying back stock, among other capital priorities.
CVS Health will pay for the deal with new debt and has lowered its share repurchase guidance for this year to $5 billion from $6 billion. CVS Health runs 7,800 drugstores and nearly 1,000 walk-in medical clinics, a total it plans to expand to 1,500 clinics by 2017. It also operates one of the nation’s largest pharmacy management businesses, which runs prescription drug coverage for insurers, employers and other big customers.
Shares of CVS Health climbed 66 cents to $102.88 Monday before markets opened, while Target rose 52 cents to $79.99.