Shares of Splunk Inc. (SPLK, Financial) jumped by approximately 14% on Monday in the wake of reports late Friday of a $20 billion buyout offer from Cisco Systems Inc. (CSCO, Financial).
The report, published in the Wall Street Journal, said that networking giant Cisco recently proposed a deal to purchase the cloud-based enterprise software company, but that the firms were not currently in discussions. The story cited unnamed sources.
The deal, if it is inked and completed, would be Cisco’s biggest ever. Currently, its biggest acquisition was in 2005, when the company spent $7 billion to acquire Scientific Atlanta.
Splunk shares soared 14% in extended trading after the news broke, according to CNBC.
Splunk's troubles
If the $20 billion valuation seems like a bit of a lowball, it's because Splunk has had a turbulent time recently. Executives of the San Francisco, California-based tech company said in December that the company’s quarterly revenue had failed to meet stock analysts’ estimates, sending shares to a 52-week low. The firm’s market cap stands at $19.9 billion, while Cisco’s market capitalization is $227 billion.
Chuck Robbins, who replaced John Chambers as Cisco’s CEO in 2015 and stepped up to chairman in 2017, is credited with reorganizing the business and focusing it more on software and services.
In November of 2021, Splunk announced that its CEO, Doug Merritt, had stepped down. Chairman Graham Smith took over as the company’s interim chief executive. Some are seeing this as a sign of weakness and speculating that it could mean Splunk is losing market share.
Founded in 2003, Splunk makes software used by companies’ information technology and security operations to monitor and analyze data. According to Barron's, “Last year, Splunk announced that private-equity firm Silver Lake was investing $1 billion. Cisco, which is set to report its latest results this week, has been expanding its software and services. The company already has a data-security partnership with Splunk.” Thus, the acquisition could turn out to be value-accretive.
The company is still growing
Splunk’s name refers to spelunking, or cave exploring, since its business involves mining data for insights, including security threats. “It has more recently sought to shift toward cloud computing and catch up with its competitors, like Datadog (DDOG, Financial) that started their business in the cloud. In June, the private-equity firm Silver Lake invested $1 billion in Splunk to help with that transition,” reported the New York Times, which referred to Cisco as “a serial acquirer, effectively using acquisitions as a complement to research and development.”
Splunk doesn't really need to be acquired in order to be successful, though. In fact, Cisco's rumored offer price could turn out to be just an early bid that later gets bumped up. Perhaps it is thinking it can get a good deal thanks to pessimism caused by the CEO stepping down.
Earlier on Monday, Splunk announced that pizza chain Papa John’s International Inc. (PZZA, Financial) has “extended its ability to use data to enhance visibility and performance across over 3,000 North American stores” with the Splunk Cloud Platform. The pizza delivery chain is working in partnership with Splunk to advance its digital experience and use real-time insights to keep up with increased demand, secure transaction processing, empower vital field operations and make critical business decisions amongst millions of pizza orders each week.
“Our business is focused on putting our customers first and delivering the highest quality pizza wherever and however they want it. To do that effectively, we have to be great at the business of data,” said Justin Falciola, senior vice president and chief insights and technology officer for Papa Johns. “Our sales channels are approaching 100 percent digital enablement. We live and breathe eCommerce. In other words, our digital transformation isn’t five years out–we are already digital leaders in the restaurant industry. But nothing in technology stands still, and we are always searching for ways to improve our customer experience. Our business strategy can’t succeed without operational analytics to ensure our systems are secure, performant, and delivering innovative experiences. That’s why we are so excited about our partnership with Splunk.”
