Express Scripts' Plan to Lay Off 1,000 Is No Mystery: Check Its Bank Account

Last Updated Nov 7, 2010 8:00 PM EST

Express Scripts' (ESRX) plan to lay off nearly 1,000 workers at its Bensalem, Penn., facility looks like one of those unfortunate "synergies" management likes to talk about following an acquisition. But it's really also about how CEO George Paz uses cash rather than debt to run the pharmacy benefit manager company.

Express bought WellPoint's NextRx subsidiaries last year in a deal worth $4.7 billion. According to the company's conference call with Wall Street on Oct 28, that acquisition is now 90 percent integrated into Express. So why is Express making layoffs now, if its strategy is already executed? CFO Jeffrey Hall says Express still has "a little bit of excess capacity" across its nine sites but there's a much more dramatic reason hidden in plain sight on Express's balance sheet: The company lost $803 million in cash this year, reducing its cash balance from $1 billion to just $268 million. That's a dramatic loss of liquid assets.

It wasn't just the WellPoint acquisition triggering that -- although the transaction did use a lot of cash. It was also because the company repaid $1.3 billion in long-term debt. Two loans came due on Oct 14, and Express chose to pay them both off rather than refinance them even though interest rates are relatively low.

So this is a company that's desperate for money. And when you don't have cash in the form of credit, there's always another way to generate dollars: slash the payroll. Which is why I wouldn't hold out much hope for the Bensalem union's attempt to persuade Express not to make the job cuts. The company just doesn't have the same cash in the bank for its payroll as it used to.

Related: Image by Flickr user Sister 72, CC.

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