Cisco Buys Splunk in $28 Billion Deal to Nab Cybersecurity Firm
Key takeaways
- Cisco has agreed to buy Splunk for $28 billion
- The two companies already work closely together and have had merger talks in the past
- Cisco shares were down 4%, but Splunk’s climbed 21%
Get ready for the biggest tech translation announcement of the year. Network company Cisco is set to take over cybersecurity firm Splunk for a cool $28 billion, with the massive acquisition set to make Cisco one of the largest software companies in the world.
Wall Street had a lukewarm reaction to the announcement, which implies there are concerns over the likelihood of the acquisition passing regulatory hurdles. Here’s everything you need to know about Cisco’s Splunk deal and the market reaction.
What’s happening with Cisco?
Network equipment business Cisco Systems has agreed to buy cybersecurity firm Splunk for a whopping $28 billion in what’s the biggest tech tie-up of the year so far.
The deal will help Cisco diversify its offering away from the core network business, which has struggled with supply chain issues and a post-pandemic lull. Instead, Splunk gives Cisco an opportunity to focus on its software business and capitalize on the AI revolution.
Splunk is well-known for its data observability capabilities, which help its clients monitor for cybersecurity threats. Its client base includes the likes of Coca-Cola, Intel and Porsche, among others.
Cisco offered $157 cash for each share of Splunk, which is a 31% premium on its share price. It’s not the first time the network company has tried to land Splunk — merger talks have taken place in the past but fell apart. Cisco also has an existing data-security partnership with Splunk from before the merger.
Cisco CEO Chuck Robbins said in a statement, “Our combined capabilities will drive the next generation of AI-enabled security and observability. From threat detection and response to threat prediction and prevention, we will help make organizations of all sizes more secure and resilient.”
How did Wall Street take the news?
Splunk’s share price climbed 21% on Thursday at $45.04, down from the offer price of $157. However, Cisco’s stock fell 4% over concerns the deal might not get over the line due to regulatory concerns. Cisco has already slid 12% since the start of the year when the Nasdaq gained 27% in the same time frame.
There may also be concerns over the price of the merger: as it stands, it represents 13% of Cisco’s entire market cap and is the biggest acquisition Cisco has ever made. It’s a bold move from the company, for sure.
The deal is set to close in 2024, with Cisco expecting the acquisition to improve its gross margins in the first year and non-GAAP earnings by the second.
The bottom line
Cisco’s takeover of Splunk makes sense from a long-term business perspective — if Cisco wants to diversify its offering and already works closely with Splunk, it’s a natural step.
But it looks like the potential regulatory concerns in Cisco becoming one of the biggest software companies in the world could be an issue for the merger, should it go ahead.
