For each Unvested Company RSU, the Cash-Out Amount will be determined by multiplying (x) the number of shares of Splunk common stock issuable upon settlement of such Unvested Company RSU by (y) the Per Share Merger Consideration.
Unvested Company PSUs. At the Effective Time, by virtue of the Merger and without the need for any further action on the part of the holder thereof, each Unvested Company PSU that is outstanding immediately prior to the Effective Time will be converted into and represent the right to receive the applicable “Cash-Out Amount” from Parent for such Unvested Company PSU (the “Unvested Cash (PSUs)”). Subject to the holder’s continued service with Parent and its affiliates (including the Surviving Corporation and its subsidiaries) through the applicable vesting dates, the Unvested Cash (PSUs) will vest and be payable at the same time as the Unvested Company PSU from which such Unvested Cash (PSUs) was converted would have vested and been payable pursuant to its terms and will otherwise remain subject to the same terms, conditions, restrictions and service-based vesting arrangements that were applicable to such Unvested Company PSUs, including those provisions for accelerated vesting on certain terminations of employment, as in effect from time to time unless otherwise superseded by any applicable contract between the holder thereof and Splunk or Parent or their respective affiliates, but effective from and after the Effective Time.
For each Unvested Company PSU, the Cash-Out Amount will be determined by multiplying (x) the total number of shares of Splunk common stock underlying such Unvested Company PSU (assuming conversion of performance-based vesting to service-based vesting and satisfaction of such service-based vesting and based on the attainment of the applicable performance metrics at the actual level of performance through Closing as determined prior to the Closing by the Board of Directors or committee thereof in accordance solely with the terms applicable to such Unvested Company PSU), by (y) the Per Share Merger Consideration.
Treatment of Company ESPP
In accordance with the terms of the Merger Agreement, on September 20, 2023, the Board of Directors adopted resolutions with respect to the Company ESPP, providing that (i) with respect to any Current ESPP Offering Period, no employee who is not a participant in the Company ESPP as of September 20, 2023 may become a participant in the Company ESPP and no participant may increase the percentage amount of his or her payroll deduction election from that in effect on September 20, 2023, for such Current ESPP Offering Period, (ii) subject to the consummation of the Merger, the Company ESPP will terminate effective immediately prior to the Effective Time, (iii) if all such Current ESPP Offering Periods terminate prior to the Effective Time, then the Company ESPP will be suspended, (iv) no new Offering Period will be commenced under the Company ESPP prior to the termination of the Merger Agreement and (v) if any Current ESPP Offering Period is still in effect at the Effective Time, then the last day of such Current ESPP Offering Period will be accelerated to the Business Day prior to the Closing Date and the final settlement or purchase of shares of Company Common Stock thereunder will be made on that day.
The Board of Directors and Splunk’s senior management team regularly review Splunk’s business, financial performance and strategic direction, outlook and growth prospects in light of industry and market developments. As part of this assessment, the Board of Directors and Splunk’s senior management regularly consider potential opportunities to strengthen Splunk’s business and enhance stockholder value, including by pursuing strategic opportunities such as acquisitions, dispositions, commercial partnerships or combinations with third parties. Consistent with their fiduciary duty to enhance stockholder value, the Board of Directors and management have always remained open to considering third-party interest in strategic transactions with Splunk as well.
On November 15, 2021, Doug Merritt, Splunk’s Chief Executive Officer, stepped down and Graham Smith, Chair of the Board of Directors, was appointed Interim Chief Executive Officer. Following this announcement, Splunk’s stock price declined from $167.82 per share on November 12, 2021, to $137.38 on November 15, 2021. Following such date and over the course of the ensuing several months, Splunk began its search for a permanent Chief Executive Officer.
On November 19, 2021, Chuck Robbins, Chair and Chief Executive Officer of Cisco, contacted Mr. Smith regarding Cisco’s potential interest in exploring a strategic combination with Splunk and inquired whether it would be possible to discuss the topic with Mr. Smith. On December 15, 2021, Mr. Smith spoke with Mr. Robbins and Mr. Robbins reiterated Cisco’s interest in a potential transaction involving Splunk. No terms, including price, with respect to any potential transaction were discussed.
On December 17, 2021, Splunk received an unsolicited non-binding indication of interest from Cisco to acquire Splunk for $165 to $175 per share in cash. Cisco’s indication of interest was subject to a number of conditions, including completion of its due diligence review of Splunk and finalization of definitive agreements for the proposed transaction. On December 21, 2021, Cisco supplemented its December 17th proposal with a letter to Splunk requesting access to certain key non-public diligence information regarding Splunk in order to allow Cisco to continue to evaluate its offer.
Over the ensuing several weeks, at Cisco’s request, representatives of Cisco and Splunk discussed publicly available information relating to Splunk’s business, operations and outlook. During this period of time, Splunk was also continuing its search for a permanent Chief Executive Officer and began to consider and work with Gary Steele as a candidate for this role.
On January 14, 2022, Splunk received a revised non-binding indication of interest from Cisco to acquire Splunk for $175 to $190 per share in cash, again subject to a number of conditions including completion of Cisco’s due diligence review of Splunk and finalization of definitive agreements for the proposed transaction.
On January 23, 2022, Cisco and Splunk entered into a customary confidentiality agreement (the “Confidentiality Agreement”) in order to facilitate their discussions and information sharing. The Confidentiality Agreement included a customary “standstill” provision but did not include a so-called “don’t ask, don’t waive” provision. Over the next several weeks, representatives of Cisco and Splunk continued to discuss Splunk’s business, operations and outlook. Also, in January 2022, the Board of Directors engaged Qatalyst Partners and another financial advisor to, among other things, assist Splunk in evaluating strategic alternatives for Splunk, including a possible sale of Splunk. Qatalyst Partners was selected by the Board of Directors based on its qualifications, expertise, reputation, and its knowledge of Splunk’s business and the industry in which it operates, to act as Splunk’s financial advisor.
On February 4, 2022, Splunk received a revised non-binding indication of interest from Cisco to acquire Splunk for $193 per share in cash, again subject to a number of conditions including completion of Cisco’s due diligence review of Splunk and finalization of definitive agreements for the proposed transaction.
On February 6, 2022, Mr. Smith spoke with Mr. Robbins by telephone and Mr. Smith verbally conveyed a counterproposal of $212 per share in cash.
Later that day, Cisco withdrew its indication of interest citing several key factors that would prevent Cisco from being able to move forward with a proposed transaction at the time, including the potential challenges of further exploring a transaction while Splunk was simultaneously finalizing its search for a permanent Chief Executive Officer and making other significant senior management changes.
Following such withdrawal, Splunk and Cisco ceased all transaction-related communications and information sharing and, on February 9, 2022, Splunk sent Cisco a request for return or destruction of confidential information received by Cisco pursuant to the Confidentiality Agreement. On February 24, 2022, representatives of Simpson Thacher & Bartlett LLP (“Simpson”), outside counsel to Cisco, certified the completion of such return and destruction on behalf of Cisco pursuant to the Confidentiality Agreement.
On February 11, 2022, various news outlets in the U.S. reported that Cisco and Splunk had been discussing a potential business combination transaction valuing Splunk at over $20 billion. Neither Cisco nor Splunk commented publicly on these news reports.
Throughout the remainder of 2022 and early 2023, Splunk announced several significant management changes. In March 2022, Splunk announced that Mr. Steele would join the company as its new President and Chief Executive Officer and that its President and Chief Growth Officer was resigning. In May 2022, Splunk announced that its President, Products and Technology, was resigning. In September 2022, Splunk announced that Tom Casey would join the company as its new Senior Vice President and General Manager, Platform and that its Senior Vice President and Chief Financial Officer was resigning. In October 2022, Splunk announced that Sharyl Givens would join the company as its new Chief People Officer. In November 2022, Splunk announced that it had completed its acquisition of TwinWave Security, a private cybersecurity company, and had appointed Mike Horn, TwinWave’s co-founder and Chief Executive Officer, as Splunk’s new Senior Vice President and General Manager of Security. In January 2023, Splunk announced that Brian Roberts would join the company as its new Senior Vice President and Chief Financial Officer. In addition, throughout 2022 and early 2023, Splunk also implemented a number of other personnel and organizational changes to improve efficiency and simplify and flatten Splunk’s management structure and organization.
In addition to management changes, Splunk lowered its outlook in 2022. On August 24, 2022, Splunk announced its second quarter of its fiscal year 2023 results adjusting down guidance for Splunk’s total annual recurring revenue from $3.9 billion to $3.65 billion and cloud annual recurring revenue from $2 billion to $1.8 billion.
Between December 17, 2021 (the date that Splunk received its first unsolicited indication of interest from Cisco) and April 4, 2023, the Nasdaq declined by 19%, the S&P Services and Software index declined by 25% and Splunk’s stock price declined by 15%.
On April 4, 2023, Scott Herren, Cisco’s Executive Vice President and Chief Financial Officer, contacted Mr. Steele to arrange a telephone call. On the call, Mr. Herren indicated that Cisco was impressed with the composition and performance of Splunk’s new management team and the business progress that Splunk had made since the parties ended transaction discussions in February 2022. Mr. Herren further indicated that Cisco was interested in reengaging with Splunk to explore a potential acquisition of the company if Splunk was open to such discussions. Mr. Steele indicated that he would discuss the matter with Splunk’s Board of Directors and let Mr. Herren know if the Board of Directors was willing to re-engage in potential transaction discussions. Following his call with Mr. Herren, Mr. Steele informed Mr. Smith, Chair of the Board of Directors of Splunk, of his call with Mr. Herren and also consulted with Morgan Stanley, Splunk’s long-standing financial advisor, on among other things, deal negotiations, business diligence matters, and potential next steps and responses to Mr. Herren.
On April 9, 2023, Messrs. Smith and Steele informed the rest of the Board of Directors about Cisco’s renewed interest in exploring a potential acquisition of Splunk and, on April 10, 2023, the Board of Directors convened a meeting to discuss the matter. Members of Splunk’s senior management team and a representative of Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), outside counsel to Splunk, also attended the meeting. At the meeting, Mr. Steele described his recent conversation with Mr. Herren. A representative of Skadden then provided an overview of the directors’ fiduciary duties in connection with their evaluation of a potential sale of Splunk in general and Cisco’s interest in particular. The representative of Skadden emphasized the importance of the Board of Directors’ active involvement and oversight of any engagement with Cisco and other potential buyers, if any. Following a discussion of Splunk’s business outlook and key strategic initiatives, conditions in Splunk’s key businesses, the macro-economic environment in general, and the state of the capital markets, as well as Splunk’s prior engagement with Cisco the previous year, the Board of Directors authorized and instructed Splunk’s management team to engage with Cisco in order to determine whether there was a path to a transaction that would be in the best interests of Splunk Stockholders. Given the extent of the information that Splunk had previously shared with Cisco during the companies’ prior transaction discussions, the Board of Directors also authorized and instructed the management team to update Splunk’s long-term financial forecasts and share a similar level of confidential information with Cisco to ensure that any renewed discussions regarding a potential transaction would be informed by information that reflected Splunk’s then-current business, products, technology and financial outlook.
On April 11, 2023, Mr. Steele called Mr. Herren to inform him that the Splunk Board of Directors had authorized and instructed Mr. Steele and his management team to engage in preliminary discussions with Cisco regarding a potential transaction and, in furtherance thereof, to provide Cisco with confidential information on its business and operations in order to determine whether a potential transaction was in the best interests of Splunk Stockholders. Mr. Herren expressed Cisco’s appreciation and, on April 12, 2023, Mr. Herren sent Mr. Steele a list of preliminary information requests, including a request to meet certain members of Splunk’s senior management team. During the ensuing weeks, the parties discussed logistics for their preliminary meetings and Splunk assembled information in response to Cisco’s information requests.
On April 26, 2023, Cisco and Splunk entered into an amendment to the Confidentiality Agreement to extend the term thereof in order to facilitate their discussions and information sharing.
On April 27, 2023, representatives of Splunk and Cisco held an initial information sharing meeting to discuss Splunk’s business, operations and outlook.
On May 2, 2023, the Board of Directors convened a meeting to discuss the status of Splunk’s engagement with Cisco. Members of Splunk’s management team and a representative of Skadden also attended the meeting. Mr. Steele updated the Board of Directors on Splunk’s recent engagement with Cisco, including Cisco’s request for Splunk’s current financial forecasts. Messrs. Steele and Roberts noted that, consistent with the Board of Directors’ previous authorization and in anticipation of Cisco’s request for current financial forecasts, Splunk’s management team had prepared preliminary financial forecasts for Splunk’s 2024, 2025 and 2026 fiscal years (the “Interim Management Projections”). Mr. Roberts presented the Interim Management Projections and described the methodology and the
material assumptions the management team used to create the Interim Management Projections. The Board of Directors discussed the Interim Management Projections and authorized and instructed the management team to share them with Cisco. The Board of Directors then discussed the status of Splunk’s engagement with Cisco and remained supportive of continued discussions with Cisco in order to determine if Cisco would present Splunk with a compelling transaction proposal.
Between May 3, 2023 and June 19, 2023, representatives of Splunk and Cisco held several additional information sharing meetings to advance discussions on Splunk’s business, technology, operations and outlook. During these meetings, Splunk’s management team shared the Interim Management Projections with representatives of Cisco.
On June 19, 2023, Mr. Steele and Mr. Robbins met in person. During the meeting, Mr. Robbins expressed appreciation for Splunk’s recent business performance and the efforts of Splunk’s new management team. Mr. Robbins also indicated that Cisco would be sending Splunk a non-binding indication of interest to acquire Splunk for $130 per share in cash. Mr. Steele expressed his appreciation for Cisco’s interest and Mr. Robbins’ proposal and indicated that he would discuss the matter with the Board of Directors once Splunk had received Cisco’s written proposal.
On June 20, 2023, Splunk received a non-binding indication of interest from Cisco to acquire Splunk for $130 per share in cash, representing a premium of 20% to Splunk’s closing stock price of $108.02 on June 16, 2023.
On June 21, 2023, the Board of Directors convened a meeting to discuss the status of Splunk’s engagement with Cisco. Members of Splunk’s management team and representatives of Skadden also attended the meeting. Mr. Steele noted that Splunk had received a non-binding indication of interest from Cisco in which Cisco proposed to acquire Splunk for $130 per share in cash, a copy of which had been made available to the Board of Directors. Mr. Steele described the information sharing meetings that the Splunk management team had recently held with Cisco prior to receiving Cisco’s indication of interest and the information shared with Cisco, including the Interim Management Projections. The members of the Board of Directors discussed their initial reactions to Cisco’s proposal, which generally reflected the view that Cisco’s offer price was less attractive than Splunk’s standalone business plans and long-term value prospects. Given Splunk’s previous discussions with Cisco in 2021 and 2022, however, the Board of Directors concluded that Splunk should continue to engage with Cisco to determine whether Cisco could be encouraged to present a more compelling offer.
Due to the fact that Splunk had received an actual transaction proposal from Cisco at this time, the Board of Directors also discussed whether it would be prudent to establish a committee of the Board of Directors to allow for flexible and timely oversight and support of management in its discussions with Cisco under circumstances where it might not be practicable to frequently assemble the full Board of Directors. After discussion, the Board of Directors approved the formation of a committee (the “Transaction Committee”), comprised of Graham Smith, Kenneth Hao, David Tunnell and Rick Wallace, to facilitate the Board of Directors’ active involvement in Splunk’s discussions and consideration of strategic alternatives, including potential negotiations with Cisco (or any other party), but without authority to approve any transaction or the terms and conditions thereof. The Transaction Committee was not created to address any actual or perceived conflict of interest, and the members of the Transaction Committee were not paid any additional compensation for serving on the Transaction Committee. The Board of Directors also discussed the need to retain a financial advisor to conduct financial analyses of any proposal or proposed transaction (and the terms and conditions thereof), to assist Splunk in negotiations and to help the Board of Directors evaluate strategic alternatives. After discussion, the Board of Directors determined to engage Qatalyst Partners and Morgan Stanley based on their respective pre-existing relationships with Splunk, including Qatalyst Partners’ engagement during the discussions with Cisco in 2022 as well as its knowledge of Splunk and Morgan Stanley’s long-standing relationship advising Splunk since its initial public offering and ongoing strategic dialogue with Splunk, as well as their respective reputations, expertise and experience advising enterprise software companies in connection with transactions of a similar nature. The Board of Directors authorized and instructed the management team to negotiate the terms of these engagements, subject to review and approval of the Board of Directors or the Transaction Committee.
On June 27, 2023, the Transaction Committee met to consult with representatives of Qatalyst Partners and Morgan Stanley regarding Cisco’s acquisition proposal. Members of Splunk’s management team (including Mr. Steele) and representatives of Skadden also attended the meeting. Representatives of Qatalyst Partners and Morgan Stanley together reviewed their preliminary financial analyses of Cisco’s $130 per share acquisition proposal. After
considering the preliminary financial analyses presented by representatives of Qatalyst Partners and Morgan Stanley, the Transaction Committee concluded that Cisco’s $130 per share offer price was not compelling but that Splunk should continue to engage in discussions with Cisco to determine whether there was a path to a transaction that was in the best interests of Splunk and its stockholders.
At this meeting, the Transaction Committee also discussed whether Splunk should conduct a “market check” to determine if any other third parties might have interest in a strategic transaction with Splunk at this time. To determine whether the Transaction Committee should conduct a “market check,” representatives of Qatalyst Partners and Morgan Stanley together reviewed a list of third parties that might have strategic interest in a transaction with Splunk based on their respective business profiles and expressed strategic plans and initiatives, as well as an ability to execute a transaction with a company with a market capitalization as large as Splunk’s. Members of the Transaction Committee and Mr. Steele discussed each of the potential acquirors identified and determined, based on their business insights and the advice of Qatalyst Partners and Morgan Stanley, that none of these parties were likely to have interest in pursuing a strategic transaction with Splunk at this time or in the near future, given among other things, the size of the transaction, other strategic priorities of strategic buyers at the time that would prevent them from pursuing such large-scale M&A opportunities. Members of the Transaction Committee actively involved in private equity investing observed that financial sponsors were unlikely to have interest in a transaction with Splunk for a variety of reasons, including the size of the transaction, Splunk’s financial profile and the then-current market conditions for leveraged acquisition financing. The Transaction Committee also noted that Splunk had not received any inbound interest from third parties in a strategic transaction with Splunk following the above-mentioned press reports of Splunk’s strategic discussions with Cisco in 2022. After such discussions, including consideration of the potential downsides of a market check, the Transaction Committee determined not to initiate a market check at this time.
At the end of the meeting, members of the Transaction Committee and Mr. Steele discussed potential responses to Cisco with representatives of Qatalyst Partners and Morgan Stanley and the appropriate means by which to convey Splunk’s response. Following this discussion, members of Splunk’s management team (including Mr. Steele) departed the meeting so the Transaction Committee could meet in executive session with representatives of Qatalyst Partners, Morgan Stanley and Skadden.
On June 29, 2023, based on guidance and instruction from the Transaction Committee, Mr. Steele called Mr. Robbins to convey Splunk’s feedback on Cisco’s $130 per share acquisition proposal. Mr. Steele informed Mr. Robbins that Splunk’s Board of Directors and management team were confident in Splunk’s standalone business prospects and that Cisco’s proposed offer price of $130 per share did not reflect a price for Splunk that was more attractive than Splunk’s standalone business prospects and long-term value. Mr. Robbins acknowledged Splunk’s response and requested additional information on Splunk’s business, technology and financial outlook in order to help Cisco refine its financial model for a potential acquisition of Splunk, including potential synergies that might be unlocked by a strategic combination of the two companies. Mr. Steele suggested the companies’ financial advisors discuss the matter further.
On July 5, 2023, a representative of Tidal Partners LLC (“Tidal Partners”), Cisco’s financial advisor, spoke with a representative of Qatalyst Partners and informed that Cisco would consider making a revised offer to acquire Splunk but needed additional diligence information from Splunk in order to determine whether to do so, and if so, what revised offer price to propose. In particular, Cisco was interested in better understanding Splunk’s technology, products and platform. The Tidal Partners representative indicated that Cisco would send a supplemental information request list to Splunk in order to focus Splunk’s information gathering efforts in support of Cisco’s financial modeling work.
On July 10, 2023, the Transaction Committee convened a meeting to discuss the status of Splunk’s engagement with Cisco. Members of Splunk’s management team (including Mr. Steele) and representatives of Skadden, Qatalyst Partners and Morgan Stanley also attended the meeting. Mr. Steele updated the Transaction Committee on the management teams’ recent discussions with Cisco, including Mr. Steele’s conversation with Mr. Robbins and Cisco’s request to receive additional information to enable it to refine its business and financial analysis of a business combination with Splunk. While Mr. Robbins had not committed to revise Cisco’s offer price, he had requested the additional information to assess whether doing so was feasible. The Transaction Committee supported Splunk’s efforts to compile and share the supplemental information that Cisco had requested and authorized and instructed Splunk to do so. Following this discussion, members of Splunk’s management team (including Mr. Steele) departed the meeting so the Transaction Committee could meet in executive session with representatives of Qatalyst Partners, Morgan Stanley and Skadden. After some discussion, representatives of Qatalyst Partners and Morgan Stanley also
departed the meeting so that the members of the Transaction Committee could discuss the terms of Qatalyst Partners’ and Morgan Stanley’s engagement, including the respective relationship disclosure letters previously provided by each of Qatalyst Partners and Morgan Stanley to the Board of Directors. After discussion, the Transaction Committee determined to authorize and instruct Splunk to formally engage both Qatalyst Partners and Morgan Stanley on the terms discussed, subject to completion of certain engagement details.
Following review and approval by the Transaction Committee of the negotiated engagement letters with each of Qatalyst Partners and Morgan Stanley, Splunk entered into a formal engagement letter with Qatalyst Partners on August 3, 2023, and a formal engagement letter with Morgan Stanley on August 16, 2023.
Between July 21, 2023, and August 3, 2023, representatives of Cisco and Splunk met in person several times to discuss, among other matters, Splunk’s business, technology, products and platform, as well as potential synergies that could be achieved through a combination of the two companies.
On July 31, 2023, Splunk completed the second quarter of its fiscal year 2024. Following the completion of the quarter, Splunk’s management team (1) refined its preliminary projections of Splunk’s fiscal year 2024 financial results as included in the Interim Management Projections based, in part, on the full year outlook implied by the second quarter results (as updated, including certain projections of Splunk’s financial results for fiscal years 2027 through 2034 prepared by Splunk’s management by extrapolating from the foregoing financial projections, the “Updated Interim Management Projections”) and (2) prepared two additional sets of alternative long-term financial projections in order to give the Board of Directors a broader perspective on possible alternative financial outcomes if macroeconomic factors impacted near-term growth and if growth rates slowed more rapidly over time (the “Sensitivity Cases”). Splunk’s management team also discussed its second quarter financial results with representatives of Cisco to explain the management team’s views on the implications of these results for Splunk’s full fiscal year 2024 estimates. Following this meeting, Splunk shared a revised fiscal year 2024 forecast with Cisco.
Following this further refinement, Splunk publicly reported its second quarter financial results on August 23, 2023. The earnings announcement reported that Splunk’s (1) total annual recurring revenue was $3.858 billion, up 16% year-over-year; (2) total revenues were $911 million, with cloud revenue growing 29% to $445 million; (3) GAAP operating expenses declined 2% year-over-year; (4) non-GAAP operating expenses declined 3% year-over-year; (5) trailing twelve-month operating cash flow was $827 million, up 247% year-over-year; (6) trailing twelve-month free cash flow was $805 million, up 273% year-over-year; and (7) number of customers with total ARR greater than $1 million was 834, an increase of 111 year-over-year. Following the earnings announcement, Splunk’s closing stock price increased from $99.93, as of the close of trading on the day of the earnings announcement, to $112.83, as of the close of trading on the day after the earnings announcement.
On August 25, 2023, Splunk received a revised non-binding indication of interest from Cisco to acquire Splunk for $142 per share in cash, representing a premium of 26% to Splunk’s closing stock price of $112.83 on August 24, 2023.
On August 27, 2023, the Transaction Committee convened a meeting to discuss the status of Splunk’s engagement with Cisco. Members of Splunk’s management team (including Mr. Steele) and representatives of Skadden, Qatalyst Partners and Morgan Stanley also attended the meeting. At the request of the Board of Directors, representatives of Qatalyst Partners and Morgan Stanley together reviewed their preliminary financial analyses of Cisco’s $142 per share acquisition proposal based on publicly available information and Splunk’s management team’s Updated Interim Management Projections and Sensitivity Cases. The Transaction Committee considered and discussed the preliminary financial analyses and concluded that Cisco’s revised offer price of $142 per share continued to undervalue Splunk and was less attractive than Splunk’s standalone business and long-term value prospects. After discussion, the Transaction Committee authorized and instructed Qatalyst Partners, on behalf of Splunk, to deliver to Tidal Partners, on behalf of Cisco, a counterproposal for Cisco to acquire Splunk for $168 per share in cash. Following this discussion, members of Splunk’s management team (including Mr. Steele) departed the meeting so the Transaction Committee could meet in executive session with representatives of Qatalyst Partners, Morgan Stanley and Skadden.
Later that day, a representative of Qatalyst Partners verbally presented the counterproposal of $168 per share in cash to a representative of Tidal Partners.
On August 28, 2023, a representative of Tidal Partners called a representative of Qatalyst Partners and verbally conveyed a revised proposal by Cisco to acquire Splunk for $146 per share in cash, reflecting a premium of 25% to Splunk’s closing stock price of $117.15 on August 28, 2023.
On August 29, 2023, the Transaction Committee convened a meeting to discuss Cisco’s latest acquisition proposal as conveyed by Tidal Partners. Members of Splunk’s management team (including Mr. Steele) and representatives of Skadden, Qatalyst Partners and Morgan Stanley also attended the meeting. Representatives of Qatalyst Partners and Morgan Stanley together reviewed the verbal counterproposal for Cisco to acquire Splunk for $146 per share in cash that Tidal Partners had conveyed the previous day and representatives of Qatalyst Partners and Morgan Stanley together reviewed, at the request of the Board of Directors, their preliminary financial analyses of the proposal based on publicly available information and the Updated Interim Management Projections and Sensitivity Cases. A representative of Skadden also gave the Transaction Committee a preliminary assessment of the regulatory considerations of the proposed transaction and reviewed the directors’ fiduciary duties in connection with their evaluation of a potential sale of Splunk in general and Cisco’s interest in particular. The Transaction Committee considered and discussed the preliminary financial analyses and concluded that Cisco’s revised offer price of $146 per share continued to undervalue Splunk and was less attractive than Splunk’s standalone business and long-term value prospects. After discussion, the Transaction Committee authorized and instructed Qatalyst Partners to deliver a counterproposal to Tidal Partners of $160 per share in cash. Following this discussion, members of Splunk’s management team (including Mr. Steele) departed the meeting so the Transaction Committee could meet in executive session with Splunk’s outside financial and legal advisors. Later the same day, a representative of Qatalyst Partners called a representative of Tidal Partners to convey that the Transaction Committee would be prepared to accept (and recommend to the full Board of Directors to accept) a revised offer to acquire Splunk at a transaction price of $160 per share in cash.
On August 30, 2023, a representative of Tidal Partners called a representative of Qatalyst Partners to convey that Mr. Robbins intended to call Mr. Steele to discuss Cisco’s perspective on the latest price negotiations and Cisco’s assessment of an appropriate valuation of Splunk. Later that day, Mr. Robbins called Mr. Steele to discuss the proposed transaction. During the call, Mr. Robbins presented a revised proposal for Cisco to acquire Splunk for $152 per share in cash, reflecting a premium of 26% to Splunk’s closing stock price of $120.28 on August 30, 2023.
Later that day, the Transaction Committee convened a meeting to discuss Cisco’s latest acquisition proposal. Members of Splunk’s management team (including Mr. Steele) and representatives of Skadden, Qatalyst Partners and Morgan Stanley also attended the meeting. At the meeting, representatives of Qatalyst Partners and Morgan Stanley together reviewed their preliminary financial analyses with respect to Cisco’s latest proposal to acquire Splunk for $152 per share in cash based on publicly available information and the Updated Interim Management Projections and Sensitivity Cases. Following the discussion, the Transaction Committee authorized and instructed Mr. Steele to inform Mr. Robbins that the Transaction Committee would be prepared to support (and would recommend to the full Board of Directors to accept) a transaction price of $158 per share in cash. The Transaction Committee agreed to reconvene following Mr. Steele’s conversation with Mr. Robbins. Following this discussion, members of Splunk’s management team (including Mr. Steele) departed the meeting so the Transaction Committee could meet in executive session with Splunk’s outside financial and legal advisors.
Later that same day, Mr. Steele called Mr. Robbins and Mr. Steele indicated that the Transaction Committee was prepared to accept (and recommend to the full Board of Directors to accept) a transaction price of $158 per share in cash.
Later that evening, a representative of Tidal Partners called a representative of Qatalyst Partners to preview that Mr. Robbins would again call Mr. Steele to convey another revised verbal proposal to acquire Splunk. Mr. Robbins called Mr. Steele by telephone that evening and indicated that Cisco would be prepared to acquire Splunk for $156 per share in cash, reflecting a premium of 30% of Splunk’s closing stock price on August 30, 2023 of $120.28.
Following this conversation, the Transaction Committee convened another meeting on August 30, 2023. Members of Splunk’s management team (including Mr. Steele) and representatives of Skadden, Qatalyst Partners and Morgan Stanley also attended the meeting. Representatives of Qatalyst Partners and Morgan Stanley together reviewed their preliminary financial analyses of Cisco’s latest proposal to acquire Splunk for $156 per share in cash based on publicly available information and the Updated Interim Management Projections and Sensitivity Cases. Following discussion, subject to the authorization of the Board of Directors, the Transaction Committee authorized and
instructed Mr. Steele to finalize negotiations with Cisco at the highest price Mr. Steele could obtain from Cisco. Following this discussion, members of Splunk’s management team (including Mr. Steele) departed the meeting so the Transaction Committee could meet in executive session with Splunk’s outside financial and legal advisors.
On August 31, 2023, Mr. Steele called Mr. Robbins and Mr. Robbins made a verbal offer for Cisco to acquire Splunk for $157 per share in cash, reflecting a premium of 29% to Splunk’s closing stock price of $121.26 on August 31, 2023, subject to Splunk’s acceptance of a customary exclusivity agreement.
Later that day, Splunk received a revised non-binding indication of interest from Cisco to acquire Splunk for $157 per share in cash and a copy of a proposed exclusivity agreement (the “Exclusivity Agreement”) providing Cisco with the exclusive right to negotiate with Splunk for a period of 30 days following execution of the Exclusivity Agreement.
On September 1, 2023, the Board of Directors convened a meeting to consider Cisco’s proposal to acquire Splunk for $157 per share in cash. Members of Splunk’s management team and representatives of Skadden, Qatalyst Partners and Morgan Stanley also attended the meeting. Mr. Steele updated the Board of Directors on the discussions with Cisco since the last meeting of the full Board of Directors, including the details of Cisco’s latest proposal to acquire Splunk for $157 per share in cash and Mr. Smith provided a summary of the work the Transaction Committee had completed in evaluating and overseeing the negotiation process, due diligence and other transaction-related matters. Representatives of Qatalyst Partners and Morgan Stanley together reviewed their preliminary financial analyses of Cisco’s proposal based on publicly available information and the Updated Interim Management Projections and Sensitivity Cases. A representative of Skadden then provided an overview of the directors’ fiduciary duties in connection with their evaluation of a potential sale of Splunk in general and Cisco’s interest in particular. In light of Cisco’s request for exclusive negotiations and the passage of time since the Board of Directors considered the issue in June 2023, the Board of Directors also revisited whether to conduct a market check prior to entering into the Exclusivity Agreement with Cisco in order to determine whether any other third parties might have interest in a strategic transaction with Splunk at this time. Members of the Transaction Committee confirmed that they had discussed the advisability of conducting a market check at various times during negotiations with Cisco and determined not to initiate a market check for the reasons discussed by the Board of Directors in June 2023. After considering the issues previously discussed by the Board of Directors in June 2023, the transaction price being proposed by Cisco and the state of Splunk’s business and financial outlook, the Board of Directors determined that a market check was unlikely to yield additional interest in a transaction with Splunk at this time. Following discussion of the foregoing matters, the Board of Directors authorized and instructed Splunk to commence negotiation of definitive transaction agreements and documentation with Cisco at a transaction price of $157 per share in cash and to enter into an exclusivity agreement with Cisco to enable the parties to negotiate such definitive agreements and to enable Cisco to complete its confirmatory due diligence review of Splunk. Following this discussion, members of Splunk’s management team (including Mr. Steele) departed the meeting so the Board of Directors could meet in executive session with Splunk’s outside financial and legal advisors.
On September 2, 2023, Splunk and Cisco entered into the Exclusivity Agreement and commenced confirmatory due diligence and negotiation of definitive agreements for the proposed transaction.
On September 5, 2023, Mr. Robbins called Mr. Steele to reiterate his enthusiasm for the proposed transaction and his commitment to completing confirmatory due diligence and negotiation of definitive agreements as expeditiously as possible. In addition, Mr. Robbins shared Cisco’s desired targeted announcement date of September 21, 2023 and preliminary expectations for the communications roll-out following the public announcement of a the proposed transaction.
On September 6, 2023, Simpson sent to Skadden an initial draft of the merger agreement for the proposed transaction. Such merger agreement indicated that Cisco would seek to negotiate and finalize voting agreements with certain key Splunk stockholders as a condition to entering into the merger agreement with Splunk.
Over the course of the ensuing period of time until the parties entered into the merger agreement on September 20, 2023, Cisco and its advisors continued their confirmatory due diligence review of Splunk and representatives of Splunk, Cisco, Skadden and Simpson negotiated the terms of the merger agreement and other definitive documentation for the proposed transaction.
On September 7, 2023, a representative of Simpson called a representative of Skadden seeking permission for Cisco to commence discussions with Mr. Steele and potentially other key senior executives of Splunk regarding their
respective roles with Cisco following the completion of the proposed transaction. The representative of Simpson conveyed Cisco’s view that Mr. Steele and potentially other key senior executives were critical to Cisco’s willingness to proceed with the proposed transaction, so Cisco was conditioning its willingness to enter a definitive transaction agreement with Splunk on the completion of an employment agreement with Mr. Steele and potentially other key executives to be determined after further discussion (all of which would only become effective upon the completion of the proposed transaction). Mr. Steele and the Transaction Committee discussed this request and determined to authorize Cisco to discuss Mr. Steele’s role at Cisco but not his compensation at this time, and Mr. Steele agreed to abide by the parameters of this conditional authorization until the Transaction Committee authorized compensation related discussions. The Transaction Committee also authorized and instructed Mr. Steele to provide oversight of Cisco’s engagement with other key senior executives of Splunk to ensure such engagement did not affect, interfere with or disrupt ongoing negotiations with Cisco regarding the transaction in general. A representative of Skadden conveyed the Transaction Committee’s conditional authorization to Simpson. Thereafter, Mr. Steele had numerous discussions with Cisco regarding his role at Cisco following the completion of the proposed transaction but compensation matters were not discussed. During this period of time, Mr. Steele also discussed with representatives of Cisco the potential role various other senior Splunk executives may have with following the completion of the transaction. Following those discussions, it was agreed that Cisco would only seek to negotiate and finalize employment agreements with two other senior Splunk executives as a condition to entering into a definitive transaction agreement with Splunk.
On September 10, 2023, a representative of Simpson sent a draft of a voting agreement to representatives of Skadden, pursuant to which H&F would be required, among other things, to vote their shares of Common Stock in favor of adoption of the merger agreement and the merger, and against any competing transaction, so long as the merger agreement remained in effect. Over the course of the ensuing period of time until the parties entered into the merger agreement on September 20, 2023, representatives of Kirkland & Ellis LLP, outside counsel to H&F, Simpson and Skadden negotiated and finalized the terms of the voting agreement.
On September 13, 2023, the Board of Directors and the standing committees thereof held previously scheduled meetings. During these meetings, the Board of Directors and the Talent and Compensation Committee thereof discussed the status of negotiations with Cisco and its advisors and provided guidance and instruction on various transaction related issues under negotiation with Cisco, including the terms of a potential employee retention scheme.
Following this meeting of the Board of Directors, Splunk’s management team and Skadden negotiated the final terms of the definitive agreement for the proposed transaction with Cisco and Simpson. The Transaction Committee provided guidance and instruction to management and Skadden throughout these negotiations, meeting on September 17, 18 and 19, 2023 to discuss the status and terms of such negotiations.
In addition, following the September 13 meeting of the Board of Directors, Cisco also began discussions and negotiations with Mr. Steele, Mr. Casey and Christian Smith, Splunk’s Senior Vice President and Chief Revenue Officer, regarding their employment with Cisco. On or around September 14, 2023, Cisco requested permission to propose and negotiate full terms of the senior executives’ employment agreements, including compensation-related items. After discussion and consideration of the progress of Splunk’s negotiations on the overall transaction with Cisco, the Transaction Committee authorized Mr. Steele, Mr. Casey and Mr. Smith to negotiate their employment with Cisco, including compensation-related items. Thereafter, all three executives and their personal legal counsel negotiated the terms of their respective employment agreements with Cisco and Simpson.
On September 20, 2023, the Board of Directors convened a meeting to discuss the fully negotiated terms of the definitive agreement for the proposed transaction with Cisco. Members of Splunk’s management team and representatives of Skadden, Qatalyst Partners and Morgan Stanley also attended the meeting. Representatives of Qatalyst Partners reviewed with the Board of Directors its financial analyses of the merger consideration of $157 per share of Splunk common stock. Subsequently, a representative of Morgan Stanley presented Morgan Stanley’s financial analyses of the proposed transaction. A representative of Skadden then presented a detailed outline of the fully negotiated definitive merger agreement and related documentation for the proposed transaction. The Board of Directors was then presented with a summary of the terms of the proposed employment arrangements with Mr. Steele, Mr. Casey and Mr. Smith. After discussion among the Board of Directors and representatives of Qatalyst Partners, Morgan Stanley and Skadden, (1) a representative of Qatalyst Partners delivered Qatalyst Partners’ oral opinion, subsequently confirmed in writing, dated September 20, 2023, to the Board of Directors that, as of such date and based upon and subject to the various limitations, qualifications and conditions set forth in the Qatalyst Partners’ written opinion, the Per Share Merger Consideration to be received pursuant to, and in accordance with, the terms
