Cisco Systems Acquires Splunk: A Strategic Move Towards AI-Driven Cybersecurity
Cisco Systems has announced its largest-ever deal, acquiring cybersecurity firm Splunk for $28 billion. This acquisition is aimed at bolstering Cisco’s software business and taking advantage of the growing artificial intelligence sector. It also serves to reduce Cisco’s reliance on its traditional networking equipment business, which has faced supply chain issues and decreased demand post-pandemic.
Cisco’s CEO, Chuck Robbins, emphasized the importance of this merger in the areas of security and observability, which are critical for customers and less likely to face spending cuts. Splunk’s strength lies in data observability, helping companies monitor cybersecurity risks and other threats through a subscription-based pricing model.
Despite previous failed merger talks, Cisco’s offer of $157 per share for Splunk represents a 31% premium on its last closing price. However, Splunk’s shares were trading below the offer price, reflecting uncertainty about regulatory scrutiny, while Cisco’s shares were down 4%.
Both companies already have a data-security partnership, with Splunk serving prominent clients such as Coca-Cola, Intel, and Porsche. This acquisition is expected to accelerate revenue growth and gross margin expansion at Cisco in the first fiscal year after closing, making it a significant move in the AI-enabled security sector.
While some analysts anticipate antitrust scrutiny due to overlapping security businesses, Cisco remains confident about regulatory approval. The deal, approved unanimously by both boards, is set to close by the end of the third quarter of 2024, adding $4 billion in annual recurring revenue to Cisco. If the deal falls through, Cisco will pay Splunk a termination fee of $1.48 billion.
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