Cisco Systems (CSCO) announced Thursday that it would acquire a software company. splunk (Sprak) $28 billion in cash. Splunk stock soared on the news, but the trading price was well below the takeout price. CSCO stock fell.
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Cisco plans to buy Splunk for $157 per share, a 31% premium over the company’s closing price on Wednesday.
In February 2022, Cisco reportedly offered to acquire Splunk for $20 billion.
CSCO Stock: Shift to Software
The computer networking giant is moving away from its traditional business of selling switches and routers toward recurring revenue and subscription-based software and services.
Splunk stock soared 21.3% to 145.02 in midday stock market trading today. As a result of this move, SPLK stock was trading well below the acquisition price of $157 per share. Regulators plan to scrutinize the contract for antitrust issues. Meanwhile, Cisco stock fell 4.1% to 53.24.
Splunk has its roots in data analytics software and has expanded into cybersecurity. Additionally, there is a shift from on-premise products to software-as-a-service business models.
Raymond James analyst Simon Leopold said in a note: “Our scenario suggests this deal can meet Cisco’s margin and cash growth goals, but it is transformative. I don’t think so.”
He added, “We believe Splunk is a strategic fit and have confidence in Cisco’s management team regarding the cultural fit. Cisco has made a clear commitment to increasing recurring revenue within the software and combination. “We have a well-defined strategy and Splunk fits that vision. Although the valuation of the deal appears to be large, this reduces the likelihood of other higher bidders emerging.”
Cisco Software Acquisition
Cisco’s largest software acquisition to date was AppDynamics in 2017 for $3.7 billion. In July 2019, Cisco acquired Duo Security for his $2.35 billion, making it the company’s largest cybersecurity acquisition since his acquisition of Sourcefire in 2013.
“This acquisition will enable Cisco to offer a full-stack observability platform,” William Blair analyst Jonathan Ho said in a report. “Cisco has historically had strength in infrastructure/network monitoring, and AppDynamics has strength in application monitoring. Now, Splunk is adding Cisco’s third feature of Cisco’s observability platform in log management. will be provided.”
The deal calls for Cisco to pay a $1.5 billion termination fee if the deal is not completed by March 2025. As part of the agreement, Splunk may not solicit competing offers.
SPLK Stock: Best View in Q2 Earnings
San Francisco-based Splunk reported adjusted earnings of 71 cents per share on revenue of $911 million for the second quarter ended July 31. This is up from earnings of 9 cents per share on sales of $799 million in the year-ago period. SPLK stock analysts surveyed by FactSet had expected earnings of 46 cents per share on revenue of $889 million.
Private equity firm Silver Lake made a $1 billion investment in Splunk through convertible debt in 2021.
CSCO stock currently has a Relative Strength Rating of 86 out of a possible 99. The best stocks tend to have an RS Rating of 80 or higher.
The stock has an Accumulation/Distribution Rating of B-, according to IBD MarketSmith analysis. This rating analyzes changes in a stock’s price and volume over the past 13 trading weeks.
As of Wednesday, Cisco stock is above the buy zone. On June 13, CSCO stock broke above the cup-with-handle base at 50.58.
Cisco and Splunk are both on the IBD Tech Leaders list.
Follow Reinhard Klaus on X (formerly Twitter). @reinhardtk_tech Get the latest information on 5G wireless, artificial intelligence, cybersecurity, and cloud computing.
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