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"The fact that, you know, we're delivering health care in a retail environment and at the same time, selling tobacco, that contradiction was growing for us," Merlo told "Squawk on the Street." Though CVS announced earlier this year it would phase out tobacco sales, rivals Walgreen and Wal-Mart Stores have yet to follow suit

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Reynolds said it expects the transactions to close at the same time, in the first half of 2015