Target Corporation (NYSE:TGT) and CVS Health Corp (NYSE:CVS) revealed that they have entered a partnership agreement where Target will hand over its clinic and pharmacy business to CVS for $1.9 billion.
According to Steven Halper, an analyst at FBR Capital Markets, the acquisition makes a lot of sense for CVS as a strategic move. It adds to another mass merchandise channel that will most likely introduce new services to Target’s clientele. According to the executive director of National Association of Boards, Madam Carmen A. Catizone, the deal has shifted their position into a more aggressive stand.
CVS will take over more than 1,660 pharmacies from Target in 47 states once the deal goes through. CVS will assume their operation through a store-within-store strategy called CVS/pharmacy. The service will also be extended to all the new Target stores offering Pharmacy services.
Lisa Gil, an analyst at JP Morgan, claims that she perceives the deal as a positive one for CVS because it gives patients additional points of access to unique products and services from CVS. It will also be advantageous in areas where CVS is currently under ventured, including Portland, Seattle, Salt Lake City and Denver.
Almost 80 clinics from Target will be rebranded into MinuteClinics. CVS will launch 20 additional new clinics in Target stores within the first three years after the acquisition is complete. They will be part of CVS/Minute clinics plan to have more than 1500 operational clinics by 2017.
According to Halper, the purchase will give CVS a slightly better negotiating balance to purchase products. Some of the savings will trickle down to the clientele in the form of more affordable drug costs. According to the rival firm, Walgreen Boots Alliance (WBA), CVS will most likely gain a bigger market share, making it more competitive.
Halper feels that WBA puts more emphasis on pushing same-store sales rather than expanding its locations unlike the strategy followed by CVS Health Corp (NYSE:CVS). The rival firm also focuses more on store sale especially in the beauty category rather than pharmacy sales.