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Cisco Systems (CSCO) on Thursday said it will acquire software company Splunk (SPLK) for $28 billion in cash. Splunk shares surged on the news but CSCO stock fell.
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Cisco will buy Splunk for $157 per share, a 31% premium to the software firm’s closing price on Wednesday.
In February 2022, Cisco reportedly offered to buy Splunk for $20 billion.
CSCO Stock: Shift To Software
The computer networking giant has been shifting to recurring revenue and subscription-based software and services and away from its legacy business of selling switches and routers.
Splunk stock popped 21% to 144.82 in early trading on the stock market today. Meanwhile, Cisco stock fell 3.2% to 53.70.
With roots in data analytics software, Splunk has expanded into cybersecurity. In addition, it’s undergoing a transition to a software-as-a-service business model from on-premise products.
Cisco Software Acquisitions
The biggest previous software acquisition by Cisco was AppDynamics for $3.7 billion in 2017. In July 2019, Cisco acquired Duo Security for $2.35 billion, marking its biggest cybersecurity acquisition since its purchase of Sourcefire in 2013.
“This acquisition will also allow Cisco to provide a full-stack observability platform,” William Blair analyst Jonathan Ho said in a report. “Cisco has historically been strong in infrastructure/network monitoring and AppDynamics is strong in application monitoring. Now Splunk will offer the third leg of Cisco’s observability platform in log management.”
Under the deal, Cisco would pay a $1.5 billion termination fee if the transaction does not close by March 2025. As part of the agreement, Splunk cannot solicit competing proposals.
SPLK Stock: Q2 Earnings Topped Views
For the second quarter ended July 31, San Francisco-based Splunk reported adjusted earnings of 71 cents per share on revenue of $911 million. That’s up from earnings of 9 cents per share on $799 million in sales for the same period last year. SPLK stock analysts polled by FactSet had expected earnings of 46 cents a share on $889 million in sales.
Private equity firm Silver Lake in 2021 made a $1 billion investment via convertible debt in Splunk.
CSCO stock currently holds a Relative Strength Rating of 86 out of a best-possible 99. The best stocks tend to have an RS rating of 80 or better.
Shares have an Accumulation/Distribution Rating of B-, according to IBD MarketSmith analysis. The rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
As of Wednesday, Cisco stock was extended above a buy zone. On June 13, CSCO stock broke out of a cup-with-handle base at a point of 50.58.
Cisco and Splunk are both on the IBD Tech Leaders list.
Follow Reinhardt Krause on X, formerly Twitter, @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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