Will the Target/CVS pharmacy deal lead to a future merger?

Discussion
Jun 15, 2015
George Anderson

Target and CVS Health have reached a definitive agreement for the drugstore chain to acquire the mass merchant’s pharmacies and in-store clinics for a deal valued at $1.9 billion.

If federal regulators approve the deal, it will mean:

  • CVS will operate pharmacies inside 1,660 Target stores;
  • Target’s roughly 80 in-store clinics will be rebranded as MinuteClinic;
  • CVS will open another 20 clinics inside of Target stores within three years of the deal’s close;
  • The five to 10 TargetExpress stores planned over the next couple of years will include a CVS pharmacy.

In addition to expanding its presence in existing markets, the deal will move CVS into new ones, including Denver, Portland, Salt Lake City and Seattle.

"This strategic relationship with Target supports the highly complementary customer base, brand and culture we share," said Larry Merlo, CVS Health president and CEO, in a statement. "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."

CVS/Target

Photo: CVS

Aside from an influx of cash, Target sees the deal allowing the company to concentrate on growing its core business. Target CEO Brian Cornell previously made the decision to abandon the company’s Canadian business after it lost around $2 billion in two years.

"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 Mr. Cornell in a statement. "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."

The two companies said the deal would open up the possibility for future joint projects. Will that extend to an eventual merger?

What will the CVS and Target deal mean for each company? Do you see talk about further joint projects opening up the possibility of a merger between the two companies?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"This is a win-win for both companies. There have been several previous discussions about the need for Target to refocus on its core business. This will allow it to do so and also recoup almost the same amount it lost on its poorly thought-out entry into the Canadian market."
"This shows Target is zeroing in on getting their business model focused on their major priorities. Canada was a loser for them."
"Everyone wins here, including customers. CVS has been on an acquisition tear lately, and looking pretty shrewd. And there’s no merger coming."

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18 Comments on "Will the Target/CVS pharmacy deal lead to a future merger?"


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Steve Montgomery
Guest
4 years 2 months ago

This is a win-win for both companies. There have been several previous discussions about the need for Target to refocus on its core business. This will allow it to do so and also recoup almost the same amount it lost on its poorly thought-out entry into the Canadian market. This provides a good sized war chest while it does so.

For CVS it gets in almost 1,700 locations at one time and for far less than it would cost them to build. The disadvantages for CVS are the stores are smaller than their free-standing ones. They are inside of another brand’s location and one which we have noted isn’t what it once was to the consumers. Finally, they lose the entire c-store section that they had used to their advantage to drive traffic.

Both win, but in my humble opinion, Target gains more.

Grace Kim
Guest
Grace Kim
4 years 2 months ago

Pharmacy and retail require deep industry know-how, and the partnership doesn’t cannibalize on each others’ core competencies. The two companies can focus on their own core competencies while building up two unique brands. If this partnerships proves to be successful, CVS could further expand with other retail partners.

Dick Seesel
Guest
4 years 2 months ago

I don’t see a merger in the cards, because of the two stores’ very different business models. However I can picture joint ventures extending to small-format stores with elements of both Target and CVS under one roof, especially in urban locations.

Ed Rosenbaum
Guest
4 years 2 months ago

This shows Target is zeroing in on getting their business model focused on their major priorities. Canada was a loser for them. Outsourcing the pharmacy operation will allow them to focus on the core business. The insurance ramifications alone have to mean a tremendous savings. Will others follow? Only if they see this as adding to the bottom line.

Cathy Hotka
Guest
4 years 2 months ago

Everyone wins here, including customers. CVS has been on an acquisition tear lately, and looking pretty shrewd.

And there’s no merger coming.

David Biernbaum
Guest
4 years 2 months ago

At this stage of the game there are no indications that CVS’s acquisition of Target’s pharmacy business will have any impact on the way Target does business with HBC/OTC (non-prescription) products with its vendors.

However number one: I’m sure that there will be need to be some type of synergy between the pharmacy counter and the front end since patients often are directed by pharmacists and pharmacy personnel to OTC/HBC.

However number two: This very well could be a signal of what might happen in the future. I can imagine a day when CVS runs and operates the entire HBC/OTC (and more) space in the store. But that is strictly my opinion.

And maybe the two companies will officially merge one day. Maybe. Perhaps. Maybe.

Roy White
Guest
Roy White
4 years 2 months ago

A merger down the line is unlikely. CVS is no longer interested in the front end — and to a CVS, that’s what Target is. Front end is down to a little more than 15 percent of corporate sales at this point. Moreover, the company just purchased Omnicare, a long-term care pharmacy. Store volume is heavily oriented towards pharmacy sales. Half of corporate volume comes from pharmacy benefit management. A merger with Target would in no way fit CVS’s long term strategic goals, towards which the company has been very rigorously working. Taking over Target’s pharmacy business fits this vision very well, merging with Target does not.

Lee Kent
Guest
4 years 2 months ago

Call me a parrot, but win-win! This is a super move on the part of both companies. Having a pharmacy such as CVS inside Target will definitely increase foot traffic.

But I don’t see a merger on the horizon for my two cents.

Roger Saunders
Guest
4 years 2 months ago
A win-win-win on this strategic move. The consumer who shops Target and also uses CVS for prescription drugs will be pleased. Based on the May, 2015 Prosper Monthly Consumer Survey, 22.5 percent of Target shoppers currently state they frequent CVS most often for prescription drugs. The consumer saves time and one extra stop on a monthly basis. CVS has an opportunity to grow market share with these added 1,600-plus locations, as 19.5 percent of Target shoppers choose Walgreens and 6.2 percent of Target shoppers choose Rite Aid most often for prescription drugs. In addition, CVS has an added banner in which to promote their CVS health clinics and platform of health care, an area in which they are known for their expertise. Target wins. They end up focusing on their core business and have, in effect, a lease hold position and front-end cash benefit for bringing CVS. Target should receive extra cross-channel consumer trips, as the shoppers cross over to other aisles within their Target stores. The two companies are positioned to do very well… Read more »
Alexander Rink
Guest
4 years 2 months ago

Good move by both companies in that it allows them each to focus on what they do best.

A future merger is always a possibility but if they wanted to merge, why bother going through all the effort of transferring pharmacy operations to CVS, only to integrate it back with Target in the future? When Target entered Canada they sold off or closed the pharmacy business, the CVS relationship seems to be a continuation of this strategy.

Kai Clarke
Guest
4 years 2 months ago

This is clearly the first step to CVS establishing a better position inside of Target, as well as better defining how their two organizations will work together in the future. Since CVS is a cash-rich organization and Target is closer to a cash-poor one, the deal makes good sense both now and in the future.

vic gallese
Guest
4 years 2 months ago

The deal is good for CVS, Target and the consumer! As stated, it lets each company focus on what it does best. Might Target team with Kroger? Maybe. A merger? probably not.

Jerome Schindler
Guest
4 years 2 months ago

I am a pharmacist working in another field. I never understood why Target thought they needed to have a pharmacy in their stores to begin with but I guess in the end it was this $1.9 billion payoff. Pharmacists cost probably a minimum of $125,000 a year including benefits. Most Target pharmacies do not seem to be that busy.

A long time ago at many locations Target cut the hours that the pharmacy department was open. One advantage CVS will have is that they operate a few of their pharmacies 24/7 and have a computerized prescription system. I live in Ohio and once needed a prescription refill while in North Carolina. At CVS that was no problem. Nevertheless, this is a strange marriage as Target competes with everything else CVS sells. I don’t think this deal transfers the non-prescription drug business to CVS. The pharmacists will be advising customers regarding OTC drugs that Target sells. If these Target locations end up not being profitable for CVS I wonder if they can just exit.

Dave Wendland
Guest
4 years 2 months ago

CVS Health is a good pharmacy operator—Target not so much; therefore this acquisition makes perfect sense.

What will follow? This certainly paves the way for additional opportunities for “CVS Health inside” approaches across channels and/or future integration of health-related services within Target itself.

As Bob Dylan so aptly muttered, “The Times They Are a-Changin’.”

Mike Blackburn
Guest
4 years 2 months ago

Definitely a win for Target. Not so sure about CVS. Having pharmacy inside mass merchandise stores has not been a particularly strong business. I’m sure the CVS banner will help sales to an extent, but the key for pharmacy is convenience. I think CVS will have its work cut out for itself attempting to get a decent return on this venture.

Gordon Arnold
Guest
4 years 2 months ago
We should simply look at the immediate benefits for both sides and the future risks as seen from today’s information and perspective(s). Target is in need of cash to cover the shortfalls from poor business practices. The Canada exit, the data breach(s), and slowing sales has removed several billion dollars that are not recoverable. The selling of assets will not stop the bleeding; it simply adds more life blood to the company which will be used to rebuild or bleed off. How much of this $1.9 billion dollars is available for new stores, if any, is not mentioned here and should be a concern to future investors. And whether or not the new stores being planned are a benefit to the company is solely in the hands of a leadership team with a disastrous win-loss record. As for the CVS side, the biggest concern is if the “mini stores-within-a-store” are attached to losers with a short lifespan destined for near-future closings. This would be a disaster which could result in more worthless investments to follow… Read more »
Jack Pansegrau
Guest
Jack Pansegrau
4 years 2 months ago

Will CVS get rights to Target’s way cool prescription bottles, color-coded rings and labeling system? I’m a Target pharmacy customer and I think that’s one of the best features of Target, along with personalized service (just like my former privately-owned pharmacy). As a consumer, I hope CVS preserves both.

PARAMDEEP S TEJI
Guest
4 years 2 months ago

I think Target will surely gain a lot out of this deal.

1) War chest of $ 1.9B will surely come “handy” after costly Canadian adventure trip.
2) Will help Target to concentrate on its core business, something it definitely needs to get back it’s house in order.
3) Additional traffic to the stores: New (CVS) customers who were not frequenting Target stores earlier as well additional trips from common customers (Target and CVS) to pick up their prescriptions.

For CVS, I think this means a BIG expansion at a relatively lower cost, which will surely help its standing among Pharmacy firms.

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Braintrust
"This is a win-win for both companies. There have been several previous discussions about the need for Target to refocus on its core business. This will allow it to do so and also recoup almost the same amount it lost on its poorly thought-out entry into the Canadian market."
"This shows Target is zeroing in on getting their business model focused on their major priorities. Canada was a loser for them."
"Everyone wins here, including customers. CVS has been on an acquisition tear lately, and looking pretty shrewd. And there’s no merger coming."

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