Can you diagnose what it means for a city when one of its biggest companies is acquired by a corporation in another part of the world?
That’s what people have been trying to do around St. Louis in the wake of news that Cigna was acquiring Express Scripts, a pharmacy benefits manager, for $67 billion. The latter company is headquartered on the University of Missouri-St. Louis campus and employs more than 4,600 people in the region.
The deal is the latest in a string of mergers involving major St. Louis companies in the last decade. In 2008, InBev, a Belgian brewing company, acquired local mainstay Anheuser-Busch for $52 billion. Then in 2016, Monsanto, the local agricultural technology company, and Bayer, the German chemical company, announced a $65 billion merger. (U.S. and E.U. regulators have not yet approved that deal.)
Those mergers have raised concerns about whether St. Louis is trending downward. But what do such acquisitions actually mean for a city’s economy and the well-being of its residents? We asked a health economist and the head of a local philanthropic organization for their prognosis.
Why did Cigna acquire Express Scripts? There are three large pharmacy benefits management companies: Express Scripts, Optum, and CVS Caremark.
The latter two are part of larger insurance companies. UnitedHealth controls Optum, and in December, CVS announced that it was purchasing Aetna, the health insurer, for $69 billion.
Cigna and other insurers had previously relied on the benefits management companies to negotiate with drug manufacturers on how much they pay for patients’ prescription medications, says Derek Brown, a health economist and assistant professor at Washington University in St. Louis.
Cigna determined that “now, instead of contracting out for this pharmacy benefits role, we are going to do it all in house—cut out the middleman,” Brown says.
What will the new company look like? This deal is different from the Anheuser-Busch and InBev deal in that those two companies “did the exact same thing,” says Brown. That “horizontal integration” meant there were more people in each company filling similar roles and more redundancies that were eliminated in the merger. In 2007, before the merger, Anheuser-Busch employed 6,000 people in the St. Louis area; three years later, the new company had about 4,000 employees here, according to the St. Louis Post-DIspatch.
The Express Scripts merger represents a case of “vertical integration,” Brown says, involving two companies that provide different service—meaning there are fewer redundancies to cut.
“That’s likely a good thing for St. Louis," he adds. “It’s likely that they will be more protective of jobs and investments that Express Scripts makes in the community."
Cigna, which is based in Connecticut, would only have made this investment “if it was profitable for them, and cutting costs is obviously part of that profitability,” says Brown.
How many jobs could be lost? Brown says it’s not as overt “as 1,000 people laid off, but perhaps more in the form of slower job growth or less job growth that happens here.”
It could be a situation where “we almost don’t observe what they don’t invest or choose not to invest here,” Brown says.
What does it mean for people outside of the company in St. Louis? The fact that this deal follows the other recent mergers could represent a potential “loss of prestige for St. Louis,” says Brown.
“I think some of it has to do with St. Louis’ own perception of itself. We as a community might feel a little more insecure, like you would in any personal relationship that changes a little bit,” he says. But, he adds, “I don’t think it take us off the map for other companies or other firms” considering opening an office or facility here.
Following the InBev acquisition of Anheuser-Busch, “St. Louis lost a lot of charitable dollars going into the community,” says Amelia Bond, president and CEO of the St. Louis Community Foundation.
According to tax filings, the Express Scripts Foundation “provided about $2 million in both 2016 and 2015, often to local nonprofits and institutions that ranged from the St. Louis College of Pharmacy to the Little Bit Foundation to Beyond Housing,” the Post reported.
“When we have mergers that take place of our large corporations, we do see an impact on philanthropy and charitable giving," Bond says. "And Express Scripts has been charitable and very engaged in the community. Those nonprofits that have relationships with Express Scripts, it could make an impact on them directly."
That said, after the InBev transaction, the Community Foundation received $50 million in new gifts, which amounted to a record year for the organization, Bond says.
The increase in donations came from people who sold their shares in Anheuser-Busch to InBev. “When a merger takes place, there are tax benefits to doing some charitable giving,” Bond says.
She adds a similar spike in donations could occur with this merger.
Despite that initial boost, Bond says, at the Community Foundation, “We want to grow the pie; we hate to see it shrink.”
