Cisco has announced its acquisition of cybersecurity software company Splunk in a cash deal valued at approximately $28 billion, equivalent to $157 per share.
This development had a noticeable impact on the stock market, with Splunk’s shares surging by 21% during morning trading, while Cisco’s shares experienced a 3.3% decline.
Chuck Robbins, Cisco’s Chairman and CEO, expressed his optimism about the acquisition, emphasizing its potential benefits in enhancing organizational security.
Robbins stated, “From threat detection and response to threat prediction and prevention, we will help make organizations of all sizes more secure and resilient.” The transaction is expected to conclude in the third quarter of 2024.
Cisco foresees positive financial outcomes from this acquisition, anticipating positive cash flow and improved gross margins within the first year after closing. Furthermore, it will contribute to Cisco’s non-GAAP earnings per share by the second year.
Robbins also predicted that organizational synergies would become evident and impactful within 12 to 18 months. To finance the acquisition, Cisco will combine cash and debt. This strategic move aims to solidify Cisco’s position as one of the world’s largest software companies.
Analysts’ responses to the acquisition have been mixed, with concerns about potential product overlap, regulatory scrutiny, and the purchase price, which some consider steep given Splunk’s recent shift towards cloud-based solutions.
Despite this shift, Robbins and Splunk CEO Gary Steele defended the move, highlighting the importance of customer-managed environments for their larger clients. In response to regulatory concerns, Robbins clarified that regulatory approval would not be necessary for Splunk’s operations in China.
Splunk specializes in cybersecurity, offering services to help enterprises monitor and analyze data to enhance security and resolve technical issues efficiently. In contrast, Cisco is recognized for its production and sale of telecommunications and networking equipment, complemented by a suite of software solutions.
Following the acquisition’s closure, Gary Steele, CEO of Splunk, who had been with the company for just over a year, is set to join Cisco’s executive leadership team.
The deal includes a termination fee of $1.48 billion that Cisco will pay if the acquisition is canceled or blocked due to regulatory reasons. Conversely, if Splunk withdraws from the deal for any reason, it will owe Cisco a $1 billion breakup fee.
Throughout 2023, Cisco has been actively acquiring companies, with four additions to its portfolio: Armorblox (a threat detection platform), Oort (specializing in identity management), and Valtix and Lightspin (both cloud security firms).
The advisory teams for this significant deal included Tidal Partners, Simpson Thacher, and Cravath, Swaine & Moore for Cisco. At the same time, Qatalyst Partners, Morgan Stanley, Skadden, Arps, Slate, Meagher & Flom counseled Splunk.