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Target sells pharmacy business to CVS Health

6/15/2015

WOONSOCKET, R.I., and MINNEAPOLIS — Target plans to sell its pharmacy business to CVS Health for $1.9 billion and rebrand its nearly 1,700 prescription departments as CVS/pharmacy in a blockbuster deal that stunned the healthcare world.


In addition to the pharmacies, CVS Health also will acquire Target’s 80 clinic locations and rebrand them as MinuteClinic, moving the company closer to its goal of operating 1,500 clinics by 2017. The companies also announced plans to develop five to 10 small, flexible format stores during the next two years that will be branded as Target Express and contain a CVS Health pharmacy.



The transaction enables CVS Health to reach more patients, adding a new retail channel for its offerings, and expanding convenient options for consumers, according to a statement by the companies. Given CVS Health's success in growing its business, the relationship is expected to benefit Target's long-term traffic and sales growth.



It also enables Target to strengthen its focus on wellness as a signature category. Moving forward, enhanced efforts by Target will center on continuing to deliver products and experiences to help guests eat well, be active and find natural and clean label products, according to the companies.



"This strategic relationship with Target supports the highly complementary customer base, brand and culture we share," said Larry Merlo, CVS Health president and CEO. "When we introduced the new name for our company, CVS Health, we began a new era of growth with a broader healthcare focus and an appreciation of the rise of healthcare consumerism with consumer choice and accountability growing. This relationship with Target will provide consumers with expanded options and access to our unique healthcare services that lead to better health outcomes and lower overall healthcare costs.”



"At Target, we've talked a lot about the evolving preferences of our guests and this partnership demonstrates that we're committed to putting them at the forefront of everything we do," said Brian Cornell, Target chairman and CEO. "By partnering with CVS Health, we will offer our guests industry leading healthcare services, and at the same time, sharpen our focus on elevating the way we deliver wellness products and experiences to our guests."



The deal is consistent with each company's stated goals of investing in core businesses that help drive growth, according to the companies. CVS Health expects the transaction to generate significant sales and prescription volumes upon closing, and to generate significant operating profit over the long term.



The transaction will allow Target to continue offering a traffic-driving business in its stores and deliver a differentiated experience in support of its wellness efforts. Target expects to realized after-tax proceeds from the deal of approximately $1.2 billion, which it expects to deploy in support of its long-standing capital priorities, including share repurchase. Upon closing, the companies said in-store changes at Target locations will be rolled out over a period of several months thereafter, as CVS Health and Target work to ensure the smoothest possible transition for all pharmacy and clinic patients.



CVS Health said it is committed to offering the approximately 14,000 in-store Target healthcare professionals comparable positions with CVS Health as part of the transition, while Target said it would evaluate the business impact and related support needs at its headquarters locations.


Target will continue to manage its OTC and other front-end businesses, though CVS Health will certainly influence that business going forward.


“[This CVS Health deal] is very complementary to our vision of wellness,” Cornell told analysts Monday morning. “We now have a strategic partner that brings scale, expertise, unique capabilities and certainly experience in this space to make sure it complements the things we're going to focus on from a wellness standpoint as we think about bringing better assortment, improved brands to the Target guests. Our commitment to wellness will only accelerate as part of this and we'll continue to make sure that we have the right products.”



And the sky's the limit, Cornell added, there are no limitations or restrictions on how OTC and wellness will be merchandised in the vacinity of the newly branded CVS Health pharmacies.


 


"We'll be focusing on our core strengths," Cornell said, "making great choices fronm an assortment standpoint, making sure that we have an outstanding in-store presentation and continuing to make sure that we localize and personalize how we interact with our guests."

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