Quiver Quantitative - Cisco Systems (NASDAQ:CSCO) is set to purchase cybersecurity firm Splunk for a whopping $28 billion, marking its largest acquisition to date and a strategic move to intensify its focus on artificial intelligence and software services. The acquisition comes as Cisco aims to lessen its dependence on its primary networking equipment business, which has faced challenges from supply chain disruptions and reduced post-pandemic demand. Splunk (SPLK), renowned for its expertise in data observability — an essential component in monitoring systems for cybersecurity threats — operates on a subscription model. This merger is the realization of earlier talks between the two tech giants that had previously stalled.
Cisco's CEO, Chuck Robbins, expressed confidence in the merger, emphasizing the crucial importance of security and observability for clients, sectors unlikely to see budget cuts due to the severity of potential threats. Splunk's model complements Cisco's push towards software and services, marking a continued shift from the company's historical reliance on hardware.
The acquisition terms include Cisco offering $157 in cash per Splunk share, a premium of 31% to Splunk's latest closing price. While Splunk shares surged 21% following the announcement, Cisco's shares fell by 4%. Notably, Splunk, which counts giants like Coca-Cola (NYSE:KO), Intel (NASDAQ:INTC), and Porsche (ETR:P911_p) among its 15,000-plus clientele, experienced a revenue surge last year, although it faced a demand slowdown this year, a trend prevalent across the industry.
While the acquisition is the largest in Cisco's four-decade history, there are concerns regarding potential antitrust scrutiny due to overlaps in the security business. However, Robbins voiced confidence, highlighting the synergistic nature of the deal and the lack of significant technology overlaps. The agreement, approved by both companies' boards, is anticipated to conclude by the third quarter of 2024, pending regulatory approvals.
This article was originally published on Quiver Quantitative