Cisco announces deal to acquire Splunk for $28B
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Cisco Systems (NASDAQ:CSCO) said on Thursday that it has agreed to a deal to acquire cybersecurity company Splunk (NASDAQ:SPLK) for $28B in an effort to make companies "more secure and resilient" as artificial intelligence further creeps into everyday life.
Cisco (CSCO) is paying $157 per share in cash for Splunk, a roughly 31.9% premium to Wednesday's closing price. Once the deal closes, Splunk President and CEO Gary Steele will become a member of Cisco's executive leadership team and report to Chairman and CEO Chuck Robbins.
San Jose, California-based Cisco (CSCO) said the acquisition of Splunk, which it expects to be cash flow positive and gross margin accretive in the first fiscal year after the deal closes, will help boost its recurring revenue. 
The deal to acquire Splunk, which specializes in monitoring and analyzing data, also is expected to add to adjusted earnings per share in the second year after the deal closes, Cisco added.
Monness, Crespi, Hardt analyst Brian White said that Cisco (CSCO) sounded "particularly excited" to push further into the security market and bring its Extended Direction and Response platform to Splunk's SIEM franchise. 
"Splunk is heralded as a pioneer in the logging market, and now offers a broad observability platform, while also enjoying a formidable security offering," White wrote in a note. "Plus, given the massive amount of data on Splunk, Cisco is excited about AI opportunities."
White added that with Splunk being added to Cisco, it creates a "more formidable competitor" to existing vendors, including Elastic (ESTC) and Datadog (DDOG).
The proposed deal also has termination fees of $1.478B and $1B if each side should choose to end the deal. The deal is expected to close by the end of the third quarter of calendar year 2024, Cisco added, subject to customary regulatory approval and other closing conditions, including shareholder approval.
Tidal Partners LLC acted as financial advisor to Cisco, while Simpson Thacher & Bartlett LLP acted as legal counsel.
Splunk hired Morgan Stanley and Qatalyst Partners as its financial advisors, while Skadden, Arps, Slate, Meagher & Flom LLP is its legal counsel.
Cisco (CSCO) shares fell nearly 4% on back of the news, while Splunk competitors Dynatrace (DT) and Elastic (ESTC) moved higher positive. Conversely, Datadog (DDOG) fell around 3%.
ETFMG Prime Cyber Security ETF (HACK), which counts Splunk as one of its top holdings, was fractionally lower on Thursday.

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