Cisco acquires cybersecurity software company Splunk for $157 per share in a spot deal worth about $28 billion, the company announced on Thursday, in its biggest acquisition ever.
Splunk shares rose 21 percent on Thursday morning, while Cisco shares fell 3.3 percent.
“From threat detection and response to threat prediction and prevention, we will help make organizations of all sizes safer and more resilient,” Chuck Robbins, president and CEO of Cisco, said in a statement. The deal, expected to close in the third quarter of 2024, continues a months-long buying spree to develop Cisco’s cybersecurity offerings.
Cisco expects the business to have positive cash flow and a growing gross margin in the first year after the completion of the acquisition; this will be in addition to Cisco’s non-GAAP earnings per share in the second year.
Robbins expected organizational synergies to become clear and impactful within 12 to 18 months, he said during an appearance on CNBC’s Squawk on the Street on Thursday. The company will finance the deal with a combination of cash and debt, he said.
“Together we will become one of the largest software companies in the world,” Robbins said in a conference call with analysts.
Analysts reacted to the deal in a mixed way, expressing concerns about possible product overlaps, regulatory audits and the price Cisco had paid for a company that, according to one analyst, was a “daunting” fulcrum for the cloud.
In recent years, Splunk has abandoned a local “customer-managed” approach to focus on a cloud-based offering.
Robbins and Splunk CEO Gary Steele dismissed these concerns. “We still have a lot of big customers who rely heavily on the skills we allow in a customer-managed environment,” Steele told analysts.
Robbins added that the companies did not foresee the need for regulatory approval for Splunk’s business in China.
Splunk is a cybersecurity company that helps companies monitor and analyze their data to minimize the risk of hacks and solve technical problems faster. Cisco manufactures and sells telecommunications and networking equipment as well as a complementary software suite.
Splunk CEO Steele had been with the company for a little over a year. Before Splunk, Steele was CEO of Proofpoint, a cybersecurity company. Proofpoint was acquired by Thoma Bravo in a $12.3 billion deal in 2021.
Steele will join Cisco’s executive team after the deal is completed, Cisco said.
If Cisco pulls out of the deal or is forced to do so due to regulatory interference, it will pay Splunk a $1.48 billion termination fee, according to a regulatory filing. If Splunk pulls out of the deal for any reason, it will pay a $1 billion termination fee to Cisco.
In 2023 alone, Cisco acquired four companies: Armorblox, a threat detection platform, Oort, which performs identity management, and Valtix and Lightspin, both cloud security companies. Cisco’s largest acquisition before the Splunk deal was the purchase of Scientific Atlanta for almost $ 7 billion.
Tidal Partners, Simpson Thacher and Cravath, Swaine & Moore advised Cisco. Qatalyst Partners, Morgan Stanley and Skadden, Arps, Slate, Meagher & Flom advised Splunk.
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