CVS Health (NYSE:CVS) will be the entity providing the goods the next time you fill your prescription at a pharmacy located inside a Target (NYSE:TGT) store. On Wednesday, the two companies closed a deal in which the former agreed this past June to buy the retailer's pharmacy and clinic business, for roughly $1.9 billion. The in-store pharmacies will be rebranded CVS/pharmacy within the next six to eight months. The clinics are to be called MinuteClinic, the name of CVS Health's existing clinic operations. All told, pharmacies occupy space in 1,672 Targets in 47 states. The figure for clinics is much smaller, at 79, although the companies say CVS will open 20 new ones in Target stores within the next three years.
Does it matter?
This deal went through smoothly from agreement to completion, with no serious hiccups. And for a transaction reaching into the low-10-figure range, it wrapped up relatively quickly. As such, we shouldn't expect a huge jolt to the share prices of either company.
Looking at the fundamentals, meanwhile, we can consider this a win for both parties. CVS Health greatly expands its footprint (and, by extension, purchasing power) in a single stroke, while Target divests a resource-draining asset that wasn't boosting take-up in other parts of the stores enough for the retailer's liking. Target also sets up a nice, reliable source of passive income -- according to the terms of the deal, CVS Health is to pay yearly rent of $20 million to $25 million for the facilities. Sure, that's a fraction of Target's annual revenue, but any income a company doesn't have to struggle and sweat to make is good income. In the shorter term, Target will book a pre-tax gain of $575 million to $775 million (based on the final valuation of the sold assets) on the deal.
Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends CVS Health. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.