Strategy

CVS to Acquire Target Pharmacies for $1.9B

The deal will further CVS' goal of "becoming the most significant company in the drug distribution and reimbursement system.”
Matthew HellerJune 15, 2015

CVS Health announced Monday it had agreed to acquire Target’s pharmacy and clinic business for $1.9 billion, a move that adds more than 1,660 pharmacies in 47 states to the second-largest drugstore chain in the U.S.

Under the terms of the deal, Target’s existing pharmacies will be rebranded as CVS/pharmacy and any new Target stores with pharmacy services will include a CVS/pharmacy.

“This strategic relationship with Target supports the highly complementary customer base, brand and culture we share,” Larry J. Merlo, chief executive of CVS, said in a news release. “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.”

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CVS, with $47.1 billion in prescription revenue from retail outlets in 2014, trails only Walgreen. Mail pharmacy sales brought in an additional $25.4 billion, according to a Pembroke Consulting report.

“CVS Health is building a business that has a lot of interlocking synergies in many different parts of the health care system,” Adam J. Fein, president of Pembroke Consulting, 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.”

The company is also the nation’s largest specialty pharmacy, the biggest operator of health care clinics and the second-largest pharmacy-benefits manager.

For Target, it may seem counterintuitive to invite a retail competitor into its stores. But as Bloomberg reports, operating its own pharmacies did not fit into CEO Brian Cornell’s strategy of “trying to regain Target’s cachet by refocusing on what it does best.”

According to CFO John Mulligan, the pharmacy business posted “modestly negative” results in the company’s last fiscal year, despite $4 billion in sales.

“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,” Cornell said.  “By partnering with CVS Health, we will offer our guests industry leading health care services, and at the same time, sharpen our focus on elevating the way we deliver wellness products and experiences to our guests.”