Cisco reportedly made $20B+ bid to acquire Splunk, but talks not active

Cisco Systems Inc. has reportedly made a takeover offer for Splunk Inc. worth more than $20 billion.

The Wall Street Journal reported late Friday, however, that the companies “aren’t currently in active talks,” according to “people familiar with the matter.”

Splunk Inc., whose software enables companies to search, monitor and analyze machine-generated data such as logs that may indicate why hardware is malfunctioning, has been struggling in the past year with earnings outlooks that disappointed investors. The stock crashed 18% in November on the news that longtime Chief Executive Doug Merritt was quitting, replaced on an interim basis by Splunk Chairman Graham Smith.

The executive suite at Splunk has seen a number of other shifts in the past year, in particular from Amazon Web Services Inc., including Splunk President and Chief Growth Officer Teresa Carlson and Shawn Bice, its president of products and technology.

Whoever becomes CEO, assuming a Cisco deal doesn’t make that moot, will have a tough task on their hands, Constellation Research Inc. analyst Holger Mueller told SiliconANGLE late last year. He said that the company’s costs are growing much faster than sales.

“Splunk added $100 million in revenue compared to last year but its operating costs are up $180 million. Overall, its losses this quarter are up $120 million,” Mueller said of the previous quarter. “Splunk’s management will have to find a way out of this dilemma somehow, either by finding a way to grow faster or by keeping a lid on its spending. But neither option will be easy.”

After the close of trading today, Splunk’s shares shot up nearly 13% on the potential deal. Cisco’s shares moved up after-hours only a fraction of a percentage point.

The deal, if it happens, would be Cisco’s largest ever, dwarfing the $7 billion acquisition of Scientific Atlanta in 2005 and the $5 billion acquisition of Acacia Communications Inc. last year.

Cisco is well-known for making a large number of acquisitions to fill out its networking product line and move into new businesses, such as videoconferencing with Webex. As the Journal noted, Cisco has plenty of dry powder to make more acquisitions, between its market capitalization of $235 billion and more than $20 billion in cash and short-term investments.

And enterprise software in particular has been fairly hot, at least until recently, thanks to the pandemic forcing digital transformation on a wide range of industries. In June, the private equity firm Silver Lake made a $1 billion investment in Splunk to aid its shift from software licensing to cloud-oriented subscriptions.

Cisco is scheduled to report quarterly earnings Feb. 16, and Splunk is set for reporting March 2.

Image: Splunk