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Cisco’s $28 Billion Splunk Acquisition Strengthens Cybersecurity Amidst AI Expansion – Merger Arbitrage Mondays

  • September 25, 2023

Key Highlights

  • Cisco (CSCO) to acquire  Splunk (SPLK) in a massive $28.45 billion deal for $157 per share in cash.
  • UK’s Competition and Markets Authority (CMA) gave preliminary approval for Microsoft’s (MSFT) acquisition Activision Blizzard (ATVI). Spread contracts to just 1.13%.
  • Desktop Metal’s (DM) acquisition by Stratasys (SSYS) faces lack of shareholder support.

Splunk Inc. (SPLK) $145.07

On September 21, 2023, Cisco (CSCO) and Splunk (SPLK) entered into a definitive agreement under which Cisco will acquire Splunk for $157 per share in cash, representing a premium of over 31% to Splunk’s share price the day before, and nearly 30% lower than Splunk’s record high share price of $223 in September of 2020.

We added Splunk as a potential deal to the Deals in the Works section on February 11, 2022, when the Wall Street Journal reported that Cisco had made a takeover offer worth more than $20 billion for the company. The price of Splunk after this news came out was $106.87.

Co-founded in 2003 by Michael Baum, Rob Das, and Erik Swan, Splunk is a data analytics and cybersecurity firm that provides software solutions designed to assist enterprises in the management, monitoring, and analysis of machine-generated data, with the goal of preventing security breaches and addressing technical problems.

Back in 2020, Splunk was a market leader in the security information and event management (SIEM) market with its stock at an all-time high. In late 2020 and early 2021, Splunk faced hurdles in its transition from on-premises software licensing to a cloud-based software-as-a-service (SaaS) model. It missed earnings targets, leading to investor retreat and a decline in its stock price. The company operated at a loss during this period. Simultaneously, customers started questioning the high SIEM costs and sought alternatives.

By 2022, amid the challenging cloud transition, Splunk faced financial losses and a 50% stock price drop. Rumors of a Cisco acquisition surfaced during this time, but the deal eventually collapsed.

During this summer, Splunk unveiled a range of AI-powered services aimed at assisting businesses in swiftly identifying and addressing potential problems. Cisco expressed its intention to integrate Splunk’s capabilities with its own security solutions, encompassing the monitoring of customer network data, web traffic, and email activities.

Cisco to Acquire Splunk

The transaction will not impact Cisco’s previously announced share buyback program or dividend program. Cisco will pay for the acquisition through cash available on its balance sheet, enabling it to utilize the surplus cash flow generated by the business for repurchasing shares and distributing dividends. In the recent earnings call, the company’s leadership expressed their plans to ramp up share repurchases in the upcoming years. As of the last quarter, Cisco still had $10.9 billion allocated for share buybacks under its existing program, which does not have a set expiration date.

Cisco will have to pay Splunk a termination fee of $1.48 billion if the deal is not completed.

The acquisition is expected to be completed in the third quarter of 2024, pending regulatory clearance and shareholders approval.  The current spread on the deal is 8.23%, with an annualized rate of 8.08%.


Merger Arbitrage activity remained steady last week with four new deals announced and two completed.

You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) which automatically updates itself during market hours.

Merger Arbitrage

Deal Statistics:

Total Number of Deals Closed in 2023 129
Total Number of Deals Not Completed in 2023 10
Total Number of Pending Deals
Cash Deals 42
Stock Deals 17
Stock & Cash Deals 6
Special Conditions 7
Total Number of Pending Deals 72
Aggregate Deal Consideration $824.72 billion

New Merger Arbitrage Deals:

  1. The acquisition of Green Plains Partners (GPP) by Green Plains (GPRE) for a closing value of $476.64 million in a cash plus stock deal. Under the merger agreement, each outstanding common unit of Green Plains and its affiliates do not already own will be converted into the right to receive 0.405 shares of Green Plains common stock and $2.00 in cash, plus an amount of cash equal to unpaid distributions from the end of the last quarter for which a quarterly distribution was made to the closing date, as determined in accordance with the merger agreement, without interest. We added GPP as a potential deal to the Deals in the Works section on May 4, 2023, and the price after the news of the potential deal came out was $13.16.
  2. The merger of Cambridge Bancorp (CATC) with Eastern Bankshares, Inc. (EBC) for $528 million in an all stock deal. Under the terms of the merger agreement, each share of Cambridge common stock will be exchanged for 4.956 shares of Eastern common stock.
  3. The acquisition of Splunk (SPLK) by Cisco (CSCO) for $28.45 billion or $157 per share in cash.
  4. The merger of Applied Molecular Transport (AMTI) with Cyclo Therapeutics (CYTH) in an all stock deal.  Under the terms of the agreement, AMT stockholders will receive approximately 0.174 shares of Cyclo Therapeutics in exchange for each of their shares in AMT.

Deal Updates:

  1. September 18, 2023: Tabula Rasa HealthCare (TRHC) by ExactCare Pharmacy filed their respective notification and report forms with the FTC and the DOJ on August 18, 2023. The waiting period under the HSR Act is scheduled to expire on September 17, 2023.
  2. On September 20, 2023, Capri Holdings Limited (CPRI) announced that its merger with Tapestry (TPR) is subject to clearance or approval under the antitrust laws in Australia, Canada, China, the EU, Japan, Korea, and the United Kingdom. The Merger is also subject to approval by the European Commission under the EU Foreign Subsidies Regulation.
  3. On September 20, 2023, Kaleyra (KLR) announced that independent proxy advisory firms Institutional Shareholder Services and Glass, Lewis & Co. have recommended that Kaleyra stockholders vote FOR the approval and adoption of the Merger Agreement and the Merger at the Special Meeting.
  4. On September 21, 2023, Cegeka Groep NV Computer Task Group, Incorporated (CTG) announced today that Chicago Merger Sub, a wholly owned subsidiary of Cegeka, has extended the expiration date of its offer from September 20, 2023, to October 13, 2023.
  5. On September 21, 2023, Campbell Soup’s (CPB) HSR filing for the planned acquisition of Sovos Brands (SOVO) was pulled and refiled on Friday, September 22, 2023.

Approvals:

  1. Veritiv Corporation (VRTV) announced that the waiting period under the HSR Act expired on September 11, 2023.
  2. On September 18, 2023, Paratek Pharmaceuticals (PRTK) announced that its stockholders have approved the merger agreement proposal, in connection with the previously announced definitive agreement to be acquired by Gurnet Point Capital.
  3. September 18, 2023: Kaleyra (KLR) by Tata Communications Limited filed their respective notification and report forms under the HSR Act with the DOJ and the FTC on July 13, 2023. The waiting period expired on August 14, 2023. The companies also filed a declaration with CFIUS on August 6, 2023. The CFIUS Approval was obtained on September 13, 2023. If the company stockholder approval is obtained, the Merger will close on October 5, 2023.
  4. On September 19, 2023, Brookfield Infrastructure Partners (BIP) and Triton International Limited (TRTN) announced that, following clearance from CFIUS on September 18, 2023, all regulatory approvals required to complete the previously announced acquisition of Triton by Brookfield Infrastructure have now been received. The parties currently anticipate the transaction will close on September 28, 2023.
  5. On September 19, 2023, Liminal BioSciences (LMNL) received the final order of the Ontario Superior Court of Justice approving the previously-announced plan of arrangement with Structured Alpha. The deal is expected to be completed on or about September 26, 2023.
  6. On September 21, 2023, Stockholders of Reata Pharmaceuticals (RETA) voted to approve the company’s previously announced acquisition by Biogen (BIIB).
  7. On September 21, 2023, Magellan Midstream Partners (MMP) by ONEOK (OKE) announced that their unitholders approved the previously announced merger.
  8. On September 22, 2023, the UK’s Competition and Markets Authority (CMA) gave preliminary approval for Microsoft (MSFT) to proceed with its $69 billion Activision Blizzard (ATVI) deal.

Hurdles:

  1. September 19, 2023: According to Reuters, British business minister Kemi Badenoch said on Tuesday she did not agree with Microsoft (MSFT) President Brad Smith that the Competition and Market Authority’s initial decision to block its purchase of videogame maker Activision (ATVI) was bad for Britain.
  2. September 20, 2023: According to Reuters, proxy advisory firm Institutional Shareholder Services has recommended Stratasys (SSYS) shareholders to reject the plans to buy Desktop Metal (DM), saying another offer “presents a more convincing route to value creation,”.

Shareholders Meeting Schedule

  1. Veritiv Corporation (VRTV) – October 17, 2023
  2. Fiesta Restaurant Group (FRGI) – October 24, 2023
  3. Capri Holdings Limited (CPRI) – October 25, 2023
  4. Earthstone Energy (ESTE) – October 30, 2023

Closed Deals:

  1. The acquisition of Paratek Pharmaceuticals (PRTK) by Gurnet Point Capital and Novo Holdings A/S was completed on September 21, 2023. It took 107 days for this deal to be completed.
  2. The acquisition of Radius Global Infrastructure (RADI) by EQT and Public Sector Pension Investment Board was completed on September 21, 2023. It took 204 days for this deal to be completed.

Weekly Spread Changes:

The table below shows weekly spread changes between September 15, 2023, and September 22, 2023.

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
DM 1.44 Stratasys Ltd. (SSYS) 12.42 6.09% 0.84% 5.25% All Stock
PTRS 7.845 LINKBANCORP, Inc. (LNKB) 7 2.61% -1.37% 3.98% All Stock
SAVE 16.2 JetBlue Airways Corporation (JBLU) 4.51 91.36% 88.34% 3.02% All Cash
ACER 0.82 Zevra Therapeutics, Inc. (ZVRA) 4.86 -25.61% -28.62% 3.01% Special Conditions
ZYNE 1.335 Harmony Biosciences Holdings, Inc. (HRMY) 36.28 -16.85% -19.57% 2.72% Special Conditions
SMMF 23.12 Burke & Herbert Financial Services Corp. (BHRB) 47.59 3.80% 6.45% -2.65% All Stock
SGEN 213.63 Pfizer Inc. (PFE) 32.69 7.19% 9.92% -2.73% All Cash
ATVI 93.94 Microsoft Corporation (MSFT) 317.02 1.13% 4.48% -3.35% All Cash
KLR 7.22 Tata Communications Limited (N/A) 0.42% 6.62% -6.20% All Cash
IRBT 37.33 Amazon (AMZN) 129.03 38.63% 47.52% -8.89% All Cash

Top 10 Merger Arbitrage Deals With The Largest Spreads:

Please do your own due diligence on deals with large spreads. Some of these large spreads might be related to regulatory issues or because of the way the deal is structured. We classify some of these deals as “special situation” deals in our merger arbitrage tool and provide additional details to help with the analysis. There may be unique situations related to special dividends, spinoffs, proration, etc. that need to be accounted for when looking at these spreads.

Symbol Announced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
Profit Annualized
Profit
SAVE 07/28/2022 JetBlue Airways Corporation (JBLU) $31.00 $16.2 06/30/2024 91.36% 119.09%
AMTI 09/21/2023 Cyclo Therapeutics, Inc. (CYTH) $0.27 $0.175 12/31/2023 54.11% 201.55%
IRBT 08/05/2022 Amazon (AMZN) $51.75 $37.33 02/05/2024 38.63% 105.22%
ACI 10/14/2022 The Kroger Co. (KR) $27.25 $23.21 03/31/2024 17.41% 33.62%
PNM 10/21/2020 Avangrid, Inc. (AGR) $50.30 $44.76 12/31/2023 12.38% 46.10%
WRK 09/12/2023 Smurfit Kappa (SMFTF) $39.25 $35.24 06/30/2024 11.38% 14.83%
CPRI 08/10/2023 Tapestry, Inc. (TPR) $57.00 $52.36 06/30/2024 8.86% 11.55%
NGMS 05/14/2023 Aristocrat Leisure Limited (ALL.AX) $29.50 $27.155 05/14/2024 8.64% 13.53%
SPLK 09/21/2023 Cisco (CSCO) $157.00 $145.06 09/30/2024 8.23% 8.08%
AMED 06/26/2023 UnitedHealth Group Incorporated (UNH) $101.00 $93.91 12/31/2023 7.55% 28.12%

Deals In The Works

One new potential Merger Arbitrage deal was added to the ‘Deals In The Works‘ section last week.

  1. On September 14, 2023, Runa Capital II made an all cash proposal to the Board of MariaDB (MRDB) to acquire, together with Runa’s investment affiliates, 100% of the issued share capital of the company not already owned by Runa, at a price of $0.56 per share.

Updates:

  1. On September 18, 2023, the Board of MariaDB plc (MRDBconfirmed that it has received an unsolicited non-binding indicative proposal from Runa Capital II. The Board of MariaDB is reviewing and taking advice regarding the possible offer.
  2. On September 19, 2023, Stratasys (SSYS) mailed a letter to its shareholders, urging them to vote FOR all Stratasys proposals related to its previously announced merger agreement with Desktop Metal (DM).
  3. September 20, 2023: According to Reuters, U.S. Steel Corp (X) is locked in a spat with rival steelmaker Cleveland-Cliffs Inc (CLF) over a confidentiality pact that would allow the latter to participate in a sale process that is underway.

SPAC Arbitrage

Potential SPAC IPO

  1. On September 21, 2023, Hainan Sirius Acquisition Corp. filed for $60 million IPO.

SPAC Business Combination

  1. On September 18, 2023, Golden Star Acquisition Corp (GODN) and Gamehaus Inc., a mobile game publishing company, announced that they had entered into a definitive Business Combination Agreement.
  2. On September 21, 2023, Atlantic Coastal Acquisition Corp. II (ACAB) and Abpro Corporation entered into a definitive business combination.

Completed

  1. On September 14, 2023, Cheche Group (CCGannounced the completion of the previously announced business combination with Prime Impact Acquisition I (PIAI).
  2. On September 21, 2023, Vahanna Tech Edge Acquisition I Corp. (VHNA) and Roadzen, Inc. (RDZNcompleted their business combination.
  3. On September 21, 2023, Digital Transformation Opportunities Corp. (DTOC) and American Oncology Network (AONCcompleted their business combination.
  4. On September 21, 2023, M3-Brigade Acquisition III Corp. (MBSC) and Greenfire Resources (GFRcompleted their business combination.
  5. On September 22, 2023, Murphy Canyon Acquisition Corp. (MURF) and Conduit Pharmaceuticals Limited (CDTcompleted their business combination.

Terminated

  1. On September 22, 2023, Social Leverage Acquisition Corp I (SLAC) and W3BCLOUD Holdings terminated their previously announced business combination.

List of all pending Merger Arbitrage deals:

Disclaimer: I have long positions in Activision Blizzard (ATVI) and Spirit Airlines (SAVE). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.