DRUGSTORE operator CVS Health Corp will purchase Target’s pharmacy and clinic businesses in a $1.9-million deal, both companies announced Monday, June 15.
Under the agreement, CVS would acquire Target’s more than 1,600 pharmacies in 47 states and its nearly 80 clinics. The drugstore chain would operate under the CVS brand name in Target stores, as well as branded pharmacies – which will be called MinuteClinics – in new Target stores that provide pharmacy services.
By 2017, CVS plans on operating 1,500 clinics.
The agreement comes shortly after CVS reached an agreement to acquire Omnicare, which distributes prescription drugs to nursing homes and assisted-living facilities, for $12.7 billion, including debt.
“The healthcare industry is evolving rapidly,” CVS Chief Executive Larry Merlo said during a conference call. “In this environment, success is all about effectively managing costs, quality and access.”
Target expects to see increased foot traffic with the deal, and CVS said sales and prescriptions are expected to do the same.
Brian Cornell, chief executive of Target, said the move aligns with the company’s focus on categories where it believes it can be most competitive, including apparel and items for children. It will also allow the retail company to focus more on reviving its food business, Reuters reported.
Cornell added that complex health care is not good business for Target, which lacks the expertise and scale to perform well in the pharmacy industry, according to USA Today.
After taxes, the agreement will be worth $1.2 billion to Target. The pharmacy aspect of its business takes in $4 billion in annual sales, but its profits are “modestly negative.” Although the retailer will lose revenue without its pharmacies, it will save $1 billion in sales, general and administrative costs.
The deal, which is still subject to regulatory approval, allows CVS to expand in several new markets, such as Denver, Portland, Ore. and Seattle. As the largest dispenser of prescription drugs in the United States, largest specialty pharmacy and biggest operator of health care clinics, Monday’s news is indicative of the company’s intention to continue growing.
“CVS Health is building a business that has a lot of interlocking synergies in many different parts of the health care system,” Adam Fein, president of Pembroke Consulting, a Philadelphia-based management advisory and business research company, told the New York Times. “The Target deal is one more step in their goal of becoming the most significant company in the drug distribution and reimbursement system.” (With repots from Reuters, The New York Times, The Washington Post, and USA Today)
(LA Midweek June 17 – 19, 2015 Sec. B pg.1)
