/cloudfront-us-east-2.images.arcpublishing.com/reuters/H32KIETGHJMGNPRCC2IO5NXKPU.jpg "Cisco to buy cybersecurity firm Splunk for billion")
Sept 21 (Reuters) – Cisco Systems (CSCO.O) on Thursday announced its agreement to acquire cybersecurity firm Splunk (SPLK.O) for approximately $28 billion. This is Cisco’s largest-ever deal and aims to strengthen its software business while taking advantage of the growing demand for artificial intelligence.
The deal will help reduce Cisco’s reliance on its networking equipment business, which has faced challenges in recent years due to supply chain issues and a slowdown in demand following the pandemic. Cisco CEO Chuck Robbins highlighted the importance of security and observability in this deal, stating that these areas are critical for customers and unlikely to see spending cuts.
Under Robbins’ leadership, Cisco has been working to decrease its dependence on hardware and increase its focus on software and services through various acquisitions. Splunk is well-known for its expertise in data observability, which helps companies monitor their systems for cybersecurity risks and threats. Splunk operates on a subscription-based pricing model.
While the two companies have previously discussed a merger, those discussions did not materialize. Cisco is offering $157 in cash for each share of Splunk, representing a 31% premium to the company’s last closing price.
Following the announcement, Splunk’s shares rose more than 21% to $145.04, below the offer price of $157, reflecting some uncertainty about regulatory scrutiny. Cisco’s shares, on the other hand, were down 4%.
Cisco already has a data security partnership with Splunk, and Splunk’s customer base includes prominent companies such as Coca-Cola, Intel, and Porsche.
The acquisition of Splunk is expected to accelerate revenue growth and gross margin expansion at Cisco in the first fiscal year after the deal’s closing. Cisco executives estimate that the deal will add $4 billion in annual recurring revenue.
Though some analysts have raised concerns about potential antitrust scrutiny due to overlap in the security business, Cisco expressed confidence that the deal will not face significant regulatory hurdles.
The deal is expected to close by the end of the third quarter of 2024, subject to regulatory approvals. Chinese regulatory approval is not required. If the deal falls through, Cisco will have to pay Splunk a termination fee of $1.48 billion.
Tidal Partners, Simpson Thacher & Bartlett, and Cravath, Swaine & Moore LLP served as advisers to Cisco, while Qatalyst Partners, Morgan Stanley, and Skadden, Arps, Slate, Meagher & Flom LLP advised Splunk.