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Splunk Will Be Purchased By Cisco For $28 Billion

Splunk Will Be Purchased By Cisco For $28 Billion
In its largest-ever transaction, Cisco Systems has agreed to purchase cybersecurity company Splunk for nearly $28 billion in order to grow its software division and benefit from the surge in artificial intelligence.
The largest technology transaction of the year, the agreement will lessen Cisco's reliance on its sizable networking equipment business, which has recently been plagued by supply chain problems and a slump in demand following the pandemic.
"The thing that gives you conviction is we are bringing together two companies around security and observability, which are two of the most important areas for our customers and areas where they are unlikely to cut spending in - just because of the criticality of these threats," Cisco CEO Chuck Robbins told Reuters in an interview.
Over the years, under Robbins' leadership, Cisco has made an effort to lessen its historical reliance on hardware and increased its bets on software and services through partnerships.
Splunk is renowned for its capabilities in the field of data observability, which aids businesses in monitoring their systems for threats and potential cybersecurity issues. Customers are charged according to a subscription-based pricing plan by the business.
There were reports previously that the two businesses have previously engaged in merger talks that failed.
Each share of Splunk was offered by Cisco for $157 in cash, a 31% premium to the stock's most recent closing price.
Splunk's shares were trading more than 21% higher at $145.04, which was less than the offer price of $157. This indicates some hesitancy over regulatory review. Cisco's stock price had dropped by 4%.
Based in San Jose, California Cisco and Splunk currently work together to secure data, and among Splunk's more than 15,000 clients are some well-known corporations including Coca-Cola, Intel, and Porsche.
Splunk has struggled with an industry-wide downturn in demand in 2023 brought on by higher interest rates and persistent inflation after experiencing a rise in sales growth to almost 40% last year.
According to the firms, its acquisition will hasten Cisco's revenue growth and gross margin increase in the first fiscal year following the deal's closing.
"Cisco bought a good synergistic business at a good price. It's a win for both parties," said Thomas Hayes, chair of hedge fund Great Hill Capital. "This will give Cisco an edge in AI-enabled security moving forward."
Although Cisco has completed significant purchases in the past, the acquisition of Splunk is by far the largest in its almost 40-year history. Cisco purchased the TV software company NDS for $5 billion in 2012, and AppDynamics Inc., a provider of enterprise software, for around $3.7 billion in 2017.
However, Cisco stated that it was unconcerned about the purchase encountering significant regulatory obstacles. Some experts claimed that the overlap in the security industry could bring antitrust scrutiny.
"We don’t have any history of having (antitrust) challenges in the U.S. and the two companies coming together is quite synergistic - in the technology integration there is not a ton of overlap, so there is not a lot of concern about this being some sort of roll up that is going to stop competition," Robbins told Reuters.
Subject to regulatory approvals, the acquisition, which received unanimous board approval from Cisco and Splunk, is anticipated to close by the end of the third quarter of 2024. It won't require Chinese regulatory permission. On a conference call with analysts, Cisco officials stated that the transaction will generate $4 billion in annual recurring revenue and is anticipated to be cash positive.
If the agreement is abandoned, Cisco will be obligated to pay Splunk a $1.48 billion termination fee.
Cisco received advice from Tidal Partners, Simpson Thacher & Bartlett, and Cravath, Swaine & Moore LLP. Splunk was advised by Qatalyst Partners, Morgan Stanley, and Skadden, Arps, Slate, Meagher & Flom LLP.

Christopher J. Mitchell

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