Cisco to sell US$13.5 billion of bonds to fund Splunk deal

CISCO Systems is selling US$13.5 billion of bonds in the United States high-grade debt market to partly finance its proposed US$28 billion acquisition of Splunk, as issuers rush to capitalise on strong investor demand.

The company is offering the bonds in seven parts, according to a source with knowledge of the matter. The longest portion, a 40-year security, is expected to yield 0.90 percentage point above Treasuries after initial talks in the area of 1.25 percentage point, said the source, who asked not to be identified as the details are private.

Proceeds will be used for general corporate purposes, including partially financing the Splunk deal, said the source. Bank of America (BOA), Barclays, Citigroup, Deutsche Bank, JPMorgan Chase & Co and Wells Fargo & Co are managing the bond sale, added the source.

A representative for Cisco did not respond to a request for comment.

Investment-grade companies are expected to issue more than US$50 billion of debt this week, fuelled by a pickup in mergers and acquisitions. Demand for such deals is high, underscored by Bristol Myers Squibb’s US$13 billion bond sale last week to fund two of its acquisitions that gathered orders exceeding US$85 billion. Investors are keen to snap up high-grade debt at current yields before the Federal Reserve starts lowering borrowing costs.

Cisco’s bond deal may “open floodgates” for companies such as Broadcom, Microsoft and Hewlett Packard Enterprise that are waiting in the wings to extend M&A funding duration, Bloomberg Intelligence analyst Robert Schiffman wrote in a note on Wednesday (Feb 21).

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“Demand for high-quality paper is high after two years of lower than historical issuance,” said Schiffman.

Cisco agreed to buy Splunk in a deal valued at about US$28 billion in September, representing its biggest acquisition yet and a massive push into software and artificial intelligence-powered data analysis. Splunk is known for data observability services, which allow companies to monitor internal systems for network health, cybersecurity risks and other insights.

Four issuers are expected to issue US investment-grade debt on Wednesday. Meanwhile, biotech giant AbbVie, which agreed to acquire ImmunoGen for a total equity value of US$10.1 billion in November, has asked a group of banks – including Morgan Stanley, JPMorgan, and BOA – to arrange a series of calls with fixed-income investors on Wednesday. BLOOMBERG