Cisco Systems Inc. has entered into a substantial agreement to acquire Splunk Inc. in a deal valued at approximately $28 billion, marking its most significant acquisition to date and a substantial venture into software and AI-driven data analysis.
Under the terms of the agreement disclosed in a joint statement on Thursday, Cisco will make a cash payment of $157 per share for Splunk. This represents a remarkable 31% premium over Splunk's closing share price on the previous day. The deal's value equates to approximately 10% of Cisco's total market capitalization.
In response to this announcement, Cisco's shares experienced a 2.8% decline in New York, while Splunk's stock surged by 21%.
Cisco has been actively expanding its software and services division as part of its strategy to reduce dependence on its core networking hardware business. Historically, the tech giant has primarily derived its revenue from hardware components that serve as the foundation of computer networks. However, this trend has been shifting. Last month, Cisco highlighted its significant strides in the fields of artificial intelligence and cybersecurity technology.
Furthermore, this acquisition is as much a strategic move into the realm of artificial intelligence as it is a venture into software and data security. Earlier this year, Splunk introduced a new range of AI solutions aimed at enabling companies to swiftly detect and respond to anomalies within their data. The merger between the two companies will provide substantial scale to their AI products and grant enhanced visibility into data, as articulated in Thursday's statement.
The amalgamation will seamlessly blend the AI and security capabilities of both companies to bolster the resilience and security of organizations in an AI-driven environment, according to Chuck Robbins, CEO of Cisco, who conveyed this in a blog post.
It's worth noting that discussions between the two companies had taken place previously but faltered last year, as reported by Bloomberg.
Woo Jin Ho, an analyst at Bloomberg Intelligence, characterizes this acquisition as the long-anticipated "Moby Dick" of deals that has been under consideration for some time. This acquisition may enable Cisco to attain the recurring, subscription-based software revenues it has been pursuing. Splunk, known for its ability to analyze the health of data center networks and its shift towards cloud-based offerings, can aid Cisco in navigating the complexities of cloud computing.
In a world where network infrastructures are increasingly intricate, understanding the inner workings of these systems is imperative, Jin Ho emphasized.
Analysts at Vital Knowledge have described the valuation as "rich, but not extreme," and they have noted that Cisco is acquiring a "reasonably healthy and thriving company." This acquisition dwarfs Cisco's previous purchase of Scientific Atlanta for approximately $7 billion in 2006.
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