CVS to buy Target's pharmacy, clinics businesses

(Reuters) — Drugstore operator CVS Health Corp. said it will acquire Target Corp.'s U.S. pharmacy and clinics businesses for about $1.9 billion to boost sales and prescription volumes.

The second-largest U.S. drugstore operator said it will acquire more than 1,660 Target pharmacies in 47 states and operate them through a store-within-a-store format, while Target's nearly 80 clinics will be rebranded as MinuteClinic.

Every new Target store that offers pharmacy services will include a CVS pharmacy, and CVS will open up to 20 new clinics in Target stores within three years of the deal closing, the companies said in a statement.

CVS, already present in 40 states, said the deal will help it expand in markets such as Denver, Salt Lake City, Seattle and Portland, Oregon.

CVS shares rose 0.8% to $103 and Target rose 0.9% to $80.16 in premarket trading on Monday.

This is CVS's second deal this year, after a $10.1 billion purchase of prescription services provider Omnicare Inc. in May. The deal gave CVS access to the older, sicker U.S. population and built on its specialty pharmacy.

CVS and Target said they plan to develop five to 10 small-format stores — branded as TargetExpress and including a CVS pharmacy — over two years after the deal closes, expected near the end of 2015.

CVS has committed to provide Target's cash-paying guests low-cost generic drug options and about 14,000 Target health care professionals comparable positions at CVS.

CVS said it will finance the deal through debt. To lower its leverage ratio CVS reduced its 2015 share repurchase target to $5 billion from $6 billion.

The company also cut its 2015 adjusted earnings forecast by about 1 cent per share and 2016 forecast by about 4 cents per share due to the reduced stock buyback target.

The deal will reduce CVS's 2016 adjusted earnings by about 6 cents per share, but add to Target's profit once the deal closes.

Target said it plans to use the expected $1.2 billion after-tax proceeds from the deal for initiatives such as to shares repurchases.

Target last week doubled its share buyback program to $10 billion and also raised its dividend.

Barclays is CVS's financial adviser, while Target's is Goldman Sachs.

CVS' legal adviser is Fried Frank and regulatory adviser is Dechert L.L.P. Target's legal advisers are Faegre Baker Daniels L.L.P., Wachtell, Lipton, Rosen & Katz, and Dorsey & Whitney L.L.P.