By Chelsey Dulaney and Paul Ziobro
CVS Health Corp. on Monday said it is paying $1.9 billion to buy
and run Target Corp.'s pharmacies and clinics, giving the drugstore
chain about 1,700 more locations to offer its growing health-care
services.
As part of the deal, Target's pharmacies will be rebranded as
CVS/pharmacy and operate as separate stores within a store, while
Target's nearly 80 clinics will be changed over to CVS's
MinuteClinic banner.
The agreement lets Target hand off to a specialist a business it
has used to woo shoppers into stores, but one that doesn't have the
stronger profitability of areas it wants to focus on, like baby,
kids and style. It also broadens Target's health-care services at a
time when rival Wal-Mart Stores Inc. is expanding its owns health
offerings.
To pull that off, Target will be turning to a much larger rival
that has competed effectively for discounters' customers in recent
year, as shoppers have opted for quick trips to smaller, local
stores over longer drives to big-box stores. CVS had $139.4 billion
in revenue last year and runs 7,800 drugstores, compared with
Target's $72.6 billion in sales and 1,795 stores.
According to a securities filing, CVS's rights to operate
Target's pharmacies is "perpetual," with limited options for ending
it.
CVS moved to expand its role as a drug distributor with last
month's $10.4 billion agreement to buy Omnicare Inc.
The Target deal will need to be approved by regulators. The
companies said it wasn't clear when it would close.
In a sense, the two companies will be dividing up their
overlapping markets so that each gets the business they have
emphasized: CVS gets more pharmacy volume after having made a big
bet on health, while Target gets traffic for its broader range of
goods. The companies said they would co-develop smaller format
stores that would be branded TargetExpress.
CVS said it expects the deal to generate significant sales and
prescription volumes, while boosting its presence in new markets
such as Seattle and Portland.
Target expects the move to increase its focus on wellness and to
drive long-term traffic. The retailer said it expects the sale to
bring in $1.2 billion after taxes, which it said it could use to
fund share buybacks.
After a long stretch of weak traffic and sales, Target has
refocused itself on profitable categories like apparel and home
goods and bringing back a sense of uniqueness to its stores.
Target's pharmacies haven't stood out, primarily selling basic
prescriptions. The company didn't hold a competitive auction for
its pharmacies, a person familiar with the matter said.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com and Paul
Ziobro at Paul.Ziobro@wsj.com
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