CVS Health Corp., the second largest drugstore chain the country, will purchase the pharmacy and clinic business of Target Corp. for about $1.9 billion demonstrating that its dominance in the health care industry is not abating.

The two companies known to compete with each other announced on Monday morning the deal that would involve CVS taking over the 1,660 pharmacies and 80 in-store clinics of Target albeit the transaction would still depend on regulatory approval and the closing date remains uncertain.

Woonsocket-based CVS said that it will rebrand clinics that were previously operated by Target to "MinuteClinic" as part of its plan to operate 1,500 clinics two years from now. The company is optimistic that the deal would have positive impact on sales and prescriptions.

The deal would also strengthen the company's business in areas where its presence is weak and this could have positive effects on other business operated by CVS including the CVS/caremark.

"When we introduced the new name for our company, CVS Health, we began a new era of growth with a broader health care focus and an appreciation of the rise of health care consumerism with consumer choice and accountability growing," said CVS Health President Larry Merlo in a statement. "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 transaction appears to be beneficial to Target as well. Target Chairman Brian Cornell acknowledged that CVS will provide more expertise and scale to the pharmacies and clinics than what it could offer and this could bring in more customers as people expect to receive better pharmacy services at Target locations.

"They bring scale, they bring cost efficiency, they bring expertise that we just could not bring to a space where we were operating as a subscale player," Cornell said.

Target executives also said that its pharmacy business has not been profitable in recent years regardless that it currently brings in about 6 percent of the company's $73 billion annual revenue.

Analysts likewise said that by selling its healthcare line of business, Target will be able to focus on what it is really good at. Cornell himself said that the deal will free up resources and manpower allowing Target to focus on its other strategic investments, which include overhauling the company's grocery department.

Target will earn from rent payments from CVS which will range between $20 million and $25 million.

Photo: Mike Mozart | Flickr

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