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Target hatched $1.9 billion deal with CVS at friendly CEO dinner

🕐 3 min read

NEW YORK — Target Corp. Chief Executive Officer Brian Cornell hatched the $1.9 billion plan to sell the company’s pharmacies over dinner with his counterpart at CVS Health Corp., capitalizing on his relationships from a career spent in retail.

Cornell and CVS’s CEO, Larry Merlo, have known each other for years and are occasional dinner companions, letting them share thoughts about running two of the biggest chains in the U.S. The plan to have CVS buy the pharmacies and operate them within Target’s stores, announced on Monday, was “a collective idea,” Merlo said.

“We would get together for dinner from time to time and we always compared notes in terms of challenges, opportunities,” he said.

When Cornell came to Target last August, he was the first external CEO candidate picked to run the discount chain. Since then, he’s taken advantage of his outside perspective, moving quickly to shut down Target’s money-losing Canadian division and cutting expenses at headquarters. He’s also shown the value of relationships from past jobs, which included running PepsiCo’s food division in the Americas and serving as head of Wal- Mart Stores’s Sam’s Club.

Bringing an impartial eye to the Target job has been key, Cornell said. That approach helped management decide to unload the pharmacies, which weren’t an area deemed central to the business.

“We’ve been objective enough to step back and say, ‘What are our core strengths? What are the areas that we really should be majoring in?” Cornell said. “While wellness is critically important, this wasn’t an area of expertise.”

It was apparent that Target couldn’t compete on the scale of CVS, whose business includes 1,000 in-store health clinics and pharmacy advisers, Cornell said.

The deal lets Target focus more of its energy and money on areas like fashion and groceries, he said. “Now we’ll have even more time to dedicate to the reinvention of food.”

For investors, the speed at which the CVS deal was forged is a good sign, said Bob Drbul, an analyst at Nomura Holdings. It shows that he’s moving quickly to streamline the chain, which has suffered from sluggish sales and a high-profile hacker attack in recent years.

“We are encouraged by yet another swift decision,” Drbul said in a report on Monday.

After their initial dinner conversation, Cornell and Merlo pulled their teams together to work on details. Target also conducted focus groups with customers to gauge their reaction to a potential CVS partnership.

After months of intensive work, Merlo said the pair are “amazed at how close-knit our cultures are.”

When the companies gathered early Monday to announce the agreement, “You’d have had a hard time identifying which person was on the CVS team versus the Target team,” Cornell said. “We didn’t need name badges.”

As part of the agreement, Target will supply its Up & Up over-the-counter products to the CVS pharmacies in its stores. Target will continue to develop more wellness products, Cornell said. That category, which includes items like workout gear, has been selling well for the chain.

The two CEOs have already discussed other opportunities to team up, but they’re keeping the initial effort simple.

“Over time, I think we’ll continue to evaluate ways to work together,” Cornell said.

Does that include putting CVS brands on Target shelves? “I wouldn’t rule out anything,” he said.

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