Drugstore CVS Health Corp to buy Target's US pharmacy and clinics businesses
15 June 2015
Drugstore operator CVS Health Corp said it would buy Target Corp's US pharmacy and clinics businesses for about $1.9 billion to boost sales and prescription volumes.
According to the second-largest US drugstore operator, it would acquire over 1,660 Target pharmacies in 47 states and operate them through a store-within-a-store format, while Target's nearly 80 clinics would be rebranded as MinuteClinic.
Every new Target store offering pharmacy services would include a CVS pharmacy and CVS would open up to 20 new clinics in Target stores within three years of the closing of the deal, the companies said in a statement.
According to CVS, which already counts its presence across 40 states, the deal would help it expand in markets such as Denver, Colorado; Seattle, Washington; Portland, Oregon and Salt Lake City, Utah.
CVS shares were up 0.8 per cent to $103 while Target was up 0.9 per cent to $80.16 in premarket trading today.
This comes as the drugstore's second deal this year, after a $10.1 billion purchase of prescription services provider Omnicare Inc in May.
According to CVS and Target, they planned to develop five to 10 small-format stores - branded as TargetExpress and including a CVS pharmacy - over two years after the closure of the deal, expected near the end of 2015.
"This long-term strategic relationship will certainly benefit the patients, the employees and the shareholders of both companies," CVS Health CEO Larry Merlo said in a conference call.
Target's 14,000 pharmacy and clinic workers would get comparable positions with CVS.
The deal would be worth $1.2 billion to Target after taxes and according to the company it would use the cash to boost its "long-standing capital priorities," including share buybacks.
CVS said its debt load would increase with the deal and pledged to start cutting its debt over time. The company, however, said it would cut its share buyback plan for 2015 by $1 billion to help fuel the transaction.
For finalising the deal, the retailers would need to secure regulatory approval from the US government.
According to Merlo, his personal relationship with Target CEO Brian Cornell helped make the deal possible.