Cisco beefs up cybersecurity play with US$28 billion Splunk deal

CISCO Systems has agreed to buy cybersecurity firm Splunk for about US$28 billion in its biggest-ever deal to beef up its software business and capitalise on the rising use of artificial intelligence, the companies said on Thursday (Sep 21).

The deal will help reduce Cisco’s reliance on its massive networking equipment business, which has suffered in recent years from supply chain issues and a post-pandemic slowdown in demand.

Cisco offered US$157 in cash for each share of Splunk, representing a 31 per cent premium to the company’s last closing price.

Splunk shares jumped 23 per cent to trade US$9 short of the offer price before the opening bell, while Cisco dropped nearly 5 per cent.

“Combined, Cisco and Splunk will become one of the world’s largest software companies and will accelerate Cisco’s business transformation to more recurring revenue,” a joint statement said.

Cisco already has a data-security partnership with Splunk, whose more than 15,000 customers include many prominent companies such as Coca-Cola, Intel and Porsche.

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After a surge in revenue growth last year to nearly 40 per cent, Splunk has grappled with an industry-wide slowdown in demand in 2023 wrought by rising interest rates and sticky inflation.

Its acquisition will accelerate revenue growth and gross margin expansion at hardware-reliant Cisco in the first fiscal year after the deal’s close, according to the companies.

Cisco had also made a more than US$20 billion approach for Splunk in 2022 but that fell apart, the Wall Street Journal had reported.

“Cisco bought a good synergistic business at a good price. It’s a win for both parties,” said Thomas Hayes, chairman of hedge fund Great Hill Capital. “This will give Cisco an edge in AI-enabled security moving forward.”

The overlap in the security business could, however, invite antitrust scrutiny. One analyst also raised concern about the “underwhelming” transition to the cloud at Splunk.

The deal, which was unanimously approved by the boards of both Cisco and Splunk, is expected to close by the end of the third quarter of 2024, subject to regulatory approvals. It will not require China’s nod.

If the deal is shelved, Cisco will have to pay a termination fee of US$1.48 billion.

Tidal Partners, Simpson Thacher & Bartlett and Cravath, Swaine & Moore were advisers to Cisco. Qatalyst Partners, Morgan Stanley, and Skadden, Arps, Slate, Meagher & Flom advised Splunk. REUTERS