Tech giant Cisco is set to make its biggest-ever acquisition, with plans to purchase cybersecurity and data analytics software company Splunk in a cash deal worth approximately $28 billion. This move reflects Cisco’s strategy to strengthen its software business and capitalize on the growing use of artificial intelligence.

Deal Details:

Cisco will acquire Splunk for $157 per share in cash, representing a 31% premium over Splunk’s closing share price before the announcement.

The deal is expected to close by the end of the third quarter of 2024, pending regulatory approvals.
Splunk President and CEO Gary Steele will join Cisco’s executive leadership team after the acquisition’s completion.

If the deal falls through, Cisco will pay a termination fee of $1.48 billion.

Market Reactions:

Following the news, Splunk’s shares surged by 23% in premarket trading, though they remained below Cisco’s offer price.

Conversely, Cisco’s stock dropped by nearly 5% in response to the acquisition announcement.
Strategic Implications:

The combined forces of Cisco and Splunk aim to become one of the world’s largest software companies, enabling Cisco to shift toward a more recurring revenue model.

The acquisition is expected to accelerate Cisco’s revenue growth, gross margin expansion, and overall business transformation.
Analyst Concerns:

Some analysts have raised concerns about potential product overlap, regulatory scrutiny, and the price Cisco paid for a company that shifted towards the cloud in what one analyst described as an “underwhelming” pivot.

However, Cisco and Splunk CEOs emphasized that they still serve customers who rely on a customer-managed environment, mitigating concerns about the cloud transition.

Regulatory approval for Splunk’s China business is not anticipated.

Previous Attempts:

This acquisition comes after Cisco’s failed attempt to acquire Splunk for over $20 billion in 2022.

Industry Impact:

The overlap in the cybersecurity business could attract antitrust scrutiny, but it is seen as a strategic move that could give Cisco an advantage in AI-enabled security.

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Conclusion:

Cisco’s acquisition of Splunk represents a significant step in the tech industry, with potentially far-reaching effects on the software and cybersecurity sectors.
Advisory teams for the deal:

Cisco was advised by Tidal Partners, Simpson Thacher & Bartlett, and Cravath, Swaine & Moore.

Splunk received advisory support from Qatalyst Partners, Morgan Stanley & Co, and Skadden, Arps, Slate, Meagher & Flom.