Why Splunk Stock Popped Today

What happened

Shares of Splunk (NASDAQ: SPLK) were up 21.3% as of 1:10 p.m. ET Thursday after the data analytics and observability specialist agreed to be acquired by Cisco Systems (NASDAQ: CSCO).

So what

More specifically, on Thursday morning Splunk announced it has entered into a definitive agreement under which Cisco will acquire the company for $157 per share in cash -- a roughly 31% premium from Wednesday's closing price. The deal places an equity value on Splunk of approximately $28 billion.

"We're excited to bring Cisco and Splunk together," said Cisco CEO Chuck Robbins in a statement. "Our combined capabilities will drive the next generation of AI-enabled security and observability."

Splunk, for its part, was already up nearly 40% year to date leading into the announcement, helped by a post-earnings pop last month after the company delivered significantly stronger-than-expected fiscal second-quarter results. At the time, Splunk CEO Gary Steele highlighted his company's focus on accelerating innovation as a key beneficiary of the rise of artificial intelligence stocks.

Now what

The acquisition has already been unanimously approved by both companies' boards of directors, but still requires the approval of regulators and Splunk shareholders. Assuming all goes as planned, the transaction should close by the end of the third quarter of calendar year 2024. Cisco believes the purchase should be cash-flow-positive and gross margin accretive in the first fiscal year post close, and accretive to non-GAAP (adjusted) earnings per share in the second year.

As of this writing, Splunk stock is trading at a modest 7.7% discount to the agreed purchase price. So given the cash nature of the deal -- and unless waiting longer to sell might qualify you for long-term capital gains tax rates on your profits -- I think most Splunk shareholders would do well to take their money and put it to work in any number of other promising stocks.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems and Splunk. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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