2023-11-29 15:18:15 ET
Summary
- Cisco Systems, Inc. is acquiring Splunk Inc. for $30 billion, offering a 3.74% upside to the current trading price.
- The acquisition is expected to close by the end of Q3 2024, but it could happen sooner due to the expiration of the Hart-Scott-Rodino waiting period.
- The deal seems likely to close within the 100-150-day range, with a low chance of it not being completed at all.
Splunk Inc. ( SPLK ) is a cybersecurity company that's being acquired by Cisco Systems, Inc. ( CSCO ) for $30 billion. The $200 billion tech juggernaut is paying $157 per share. Meanwhile, Splunk is trading at $151.33. That means there is still a 3.74% upside to the closing price.
The boards have approved the acquisition of directors, and the official guidance is for it to close by the end of Q3 2024. I think it will close much sooner. The Hart-Scott-Rodino ("HSR") waiting period has passed , and the company wasn't hit with a 2nd request. This should accelerate the timeline significantly. It is still possible the EU will do something. Given that the deal isn't being scrutinized in the U.S., it is much less likely the EMA or CMA will have enormous concerns.
The graph below shows how long it has historically taken for tech deals to close if the deal value fell in the $5 billion to $30 billion range:
The data is a little sparse because the tight criteria excluded a lot of companies. Yet, you start to see many deals closing in the 90-150-day range. To check whether the sparse data wasn't leading me to false or overly precise conclusions, I redid the analysis, including a much broader set of industries. I just excluded a few that tend to take a bit longer.
This shows a similar picture, but the clustering is less clear.
We are already 69 days into this deal. It would just take another month to close around the 100-day market. If it closes around the 150-day mark, that's 81 days from now, and if it closes around the 200-day mark, that's 131 days from now.
Because this has passed HSR, it seems much more likely to me that the deal will fall in the 100-150-day range. That would mean it likely closes 30-81 days from now.
Time Period (Days) | Annualized Return (%) |
---|---|
30 | 43.68 |
81 | 16.20 |
131 | 10.07 |
This isn't the true annualized return of the investment here because there is always a chance the deal will fail. There is a break fee of around 3% of the market cap. That helps. I fear that the share price will still fall at least 20%.
One reason for optimism is that the broader cybersecurity sector has done exceptionally well since the deal announcement and is up slightly over 10%.
With HSR not being an issue, the odds of the deal's ultimately being completed have also increased. I think there's less than 5% chance that it won't be completed.
Considering all of the above, I think Splunk Inc. stock is an exciting position to add to my portfolio. It can take 131 days, and the return is still decent. If it closes quickly and stealthily, it could show a very good annual return from here. If it breaks, that will be a painful loss, but I don't think this will happen with a high enough frequency to turn this into a terrible bet.
For further details see:
Cisco's $30 Billion Acquisition Of Splunk Could Close Surprisingly Quickly