CVS to buy Tar­get’s phar­ma­cies

Los Angeles Times - - BUSINESS BEAT - By Shan Li shan.li@latimes.com

CVS Health Corp. said it was spend­ing about $1.9 bil­lion to buy Tar­get Corp.’s health and clinic busi­nesses, ex­pand­ing the drug­store chain’s reach as the baby boomer gen­er­a­tion con­tin­ues to age.

The Woonsocket, R.I., com­pany is ac­quir­ing more than 1,660 phar­ma­cies at Tar­get stores in 47 states. CVS Health plans to con­tinue op­er­at­ing the phar­ma­cies in­side Tar­get stores and will open branded phar­ma­cies at new Tar­get stores of­fer­ing those ser­vices.

CVS Health said the deal would ex­tend its reach into new mar­kets, in­clud­ing Seat- tle, Den­ver and Port­land, Ore. The com­pany said the ac­qui­si­tion would re­sult in “sig­nif­i­cant sales and pre­scrip­tion vol­umes.”

Con­sol­i­da­tions of sim­i­lar busi­nesses tend to raise fears of price in­creases be­cause of re­duced com­pe­ti­tion.

But the two com­pa­nies said that Tar­get cus­tomers would ben­e­fit from price ad­van­tages, par­tic­u­larly for lower cost generic drugs, brought by CVS Health’s size, giv­ing it the abil­ity to ne­go­ti­ate bet­ter with sup­pli­ers.

Larry Merlo, CVS Health’s chief ex­ec­u­tive, said dur­ing a con­fer­ence call Mon­day with an­a­lysts that the deal “is not sim­ply about a phar­macy re­tailer op­er­at­ing phar­ma­cies for oth­ers.” In­stead, he said, the ac­qui­si­tion cre­ates op­por­tu­ni­ties “to im­prove ac­cess, im­prove health out­comes and, at the same time, re­duce the over­all cost of care.”

Tar­get Chief Ex­ec­u­tive Brian Cor­nell told an­a­lysts that CVS Health’s oper­a­tions “bring scale, they bring cost ef­fi­ciency, they bring ex­per­tise that we just could not bring to a space where we are op­er­at­ing as a sub-scale player.”

As part of the deal, Tar­get’s al­most 80 clinic lo­ca­tions will be re-branded as Min­ute­Clinic, with CVS open­ing 20 new clin­ics within three years of the deal’s close.

CVS Health and Tar­get also plan on de­vel­op­ing five to 10 smaller-for­mat stores over a two-year pe­riod; each store would be branded as Tar­getEx­press, with a CVS phar­macy tucked in­side.

CVS Health is plan­ning to fi­nance the deal, which re­quires reg­u­la­tory ap­proval, by tak­ing on ad­di­tional debt. The com­pany said the tim­ing of the deal’s close is un­cer­tain.

Last month, CVS Health an­nounced plans to spend $10.4 bil­lion to buy Om­ni­care Inc., a lead­ing provider of phar­macy ser­vices for longterm care fa­cil­i­ties.

Shares of CVS Health rose 36 cents, or 0.4%, to $102.58 on Mon­day. Tar­get shares in­creased 98 cents, or 1.2%, to $80.45.

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