Splunk stock investors should be wary of Cisco’s offer

On Friday after-hours trading, the Wall Street Journal reported that Cisco Systems (CSCO) had made an offer to acquire narrow-moth Splunk (SPLK) for more than 20 billion dollars. Although the companies are not yet in active discussions, we urge Splunk shareholders to remain cautious about the valuation of Splunk included in Cisco’s offer. Although the exact amount was not disclosed in the report, we suspect that Cisco’s offer of “over $20 billion” would not adequately compensate Splunk shareholders.

We ran through a few scenarios with different bid prices. Based on our calculations, we advise against Splunk shareholders accepting a deal below approximately $28 billion. Overall, we believe Splunk has a robust business poised for strong growth due to the company’s dominance in the comprehensive enterprise monitoring market and the age-old tailwinds behind the company’s back. . Accordingly, we believe Splunk shareholders should expect a better offer from Cisco or another interested party.

At the same time, it’s worth noting that Splunk shares are down nearly 34% from their November peak. Such a slowdown could worry investors about holding Splunk stock. However, we maintained our position that the market’s selling activity in Splunk shares has been too punitive. We believe Cisco saw the same opportunity we identified and chose to take advantage of it by offering to buy Splunk at a discount.

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