June 16--While Walgreens Boots Alliance is retrenching and restructuring in the United States, its biggest rival is expanding.
CVS Health said Monday it has agreed to take over operations of Target's more than 1,660 pharmacies in 47 states. The pharmacies inside Target stores will be renamed CVS.
If the $1.9 billion acquisition goes through, CVS will overtake Walgreens as the largest U.S. drugstore chain, with about 9,435 locations compared with 8,232 for Walgreens. In Illinois, Walgreens will remain the dominant player. The Deerfield-based company had 610 stores in the state as of Aug. 31; CVS and Target combined will have 363 locations.
Size matters in the pharmacy business because consumers want convenient options to pick up their prescriptions. Scale is also important in negotiating deals with insurance companies and pharmacy benefit managers, which run prescription drug coverage for insurers, employers and other big customers.
Walgreens went for international scale with its acquisition of Alliance Boots, a European pharmacy chain. The deal, though, has brought massive upheaval. The leadership ranks have turned over, with several Alliance Boots executives replacing their Walgreens counterparts.
Walgreens also is less than a year into a plan to reduce costs by $1.5 billion over three years. The U.S. pharmacy business will bear the brunt of the cost-cutting, which includes plans to close 200 stores and reorganize corporate and field operations.
A Walgreens spokesman declined to comment on the CVS-Target deal.
CVS and Walgreens have a lot of competition for the consumer health dollar.
Grocers and big retailers like Target and Wal-Mart have pushed deeper into customer health in recent years, in part to serve the aging baby boom generation and the millions of uninsured people who gained coverage under the federal health care overhaul. They've added walk-in clinics to their stores and, in some cases, expanded the care those clinics provide to include monitoring chronic conditions like diabetes.
Retailers also are putting more health care products on their shelves.
Drugstores have long since slowed their push to grow by building new stores and shifted to expanding what their existing stores offer. That includes groceries and other non-pharmacy items, aside from health care products, as they try to attract customers who are looking to buy more in a single stop.
CVS Health gained national attention last year when it announced it would pull tobacco from its store shelves as part of a push to improve its reputation as a health care provider. The drugstore chain also changed its name to CVS Health from CVS Caremark last year as part of its increased focus on health.
Target stopped selling tobacco in 1996.
The acquisition announced Monday allows CVS to reach more patients and expand its in-store MinuteClinic brand, which it has been growing aggressively for the past several years. The company has nearly 1,000 health clinics, compared with more than 400 walk-in clinics that Walgreens operates.
The deal also gives CVS a retail presence in new markets like Seattle, Denver and Salt Lake City.
Adam Fein, president of Pembroke Consulting in Philadelphia, said the Target deal should benefit CVS' Maintenance Choice plan, which allows customers to choose either mail order delivery or store pickup for their maintenance medications.
Target customers, in turn, will gain access to CVS Health Corp.'s pharmacy care programs that help them manage their prescriptions, find low-cost generic drugs and buy specialty medications, a rapidly growing slice of the pharmaceutical market.
The agreement also calls for new Target stores to include a CVS pharmacy if they are going to offer prescriptions drugs.
Target Corp.'s nearly 80 health clinics will be rebranded as MinuteClinic. CVS Health will also open up to 20 clinics in Target stores within three years of the deal's closing.
In addition, Woonsocket, R.I.-based CVS and Minneapolis-based Target plan to develop five to 10 smaller stores over two years. The stores will be branded as TargetExpress and include a CVS pharmacy.
The Target deal is the second major move by CVS in recent weeks. Last month the company agreed to pay $12.7 billion to acquire Omnicare, which dispenses specialty drugs and prescriptions to nursing homes. CVS also operates one of the nation's largest pharmacy management businesses.
Shares of CVS climbed 36 cents to $102.58 on Monday, while Target rose 98 cents to $80.45. Walgreens fell 64 cents to $84.42.
Associated Press contributed.
