CVS Health (NYSE:CVS), the second-largest U.S. drugstore operator, said it will acquire Target (NYSE:TGT) U.S. pharmacy and clinics businesses for about $1.9 billion to boost sales and prescription volumes.
The Woonsocket, Rhode Island-based company said it will acquire more than 1,660 Target pharmacies in 47 states and operate them under the CVS brand name through a store-within-a-store format, while Target's nearly 80 clinics will be rebranded as MinuteClinic.
Target will also seek five to 10 locations for new small-format Target Express stores that would also have a CVS pharmacy inside.
CVS Health expects the deal to generate significant sales and prescription volumes upon closing, and to generate significant operating profit over the long term. The company will fund the deal with additional debt.
“This strategic relationship with Target supports the highly complementary customer base, brand and culture we share,” Larry J. Merlo, the president and chief executive of CVS, said in a statement today. “This relationship with Target will provide consumers with expanded options and access to our unique health care services that lead to better health outcomes and lower overall health care costs.”
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 own health offerings.
Target said its after-tax net proceeds from the deal is expected to be about $1.2 billion, which it expects to deploy in support of its long-standing capital priorities, including share repurchase.
The deal will need to be approved by regulators. The companies said it wasn’t clear when it would close.
CVS said it would offer the 14,000 in-store Target health care employees comparable positions with CVS.
The deal comes less than a month after CVS agreed to buy Omnicare, which distributes prescription drugs to nursing homes and assisted-living operations, for about $12.7 billion, including debt.
Shares of CVS were little changed at $102.25 at 9:50 a.m. in New York. Shares of Target gained 1.1 percent to $80.42.