of the Merger Agreement by Splunk Stockholders (other than Parent or any affiliate of Parent) was fair, from a financial point of view, to such Splunk Stockholders (for more information, see the section of this proxy statement captioned “The Merger—Opinions of Qatalyst Partners LP and Morgan Stanley & Co. LLC”), and (2) a representative of Morgan Stanley delivered Morgan Stanley’s oral opinion to the Board of Directors, subsequently confirmed in writing, that, as of September 20, 2023, and based upon and subject to the various limitations, qualifications, assumptions and other matters set forth in the written opinion, the Per Share Merger Consideration to be received pursuant to the Merger Agreement by Splunk Stockholders (other than the holders of the Excluded Shares) was fair, from a financial point of view, to such Splunk Stockholders (for more information, see the section of this proxy statement captioned “The Merger—Opinions of Qatalyst Partners LP and Morgan Stanley & Co. LLC”). After additional discussions of the proposed transaction and the financial analyses and opinions and the terms of the transaction documentation summarized for the Board of Directors at the meeting, the Board of Directors, among other related matters, unanimously (1) determined that it was in the best interests of Splunk and Splunk Stockholders, and declared it advisable, to enter into the Merger Agreement and consummate the Merger upon the terms and subject to the conditions set forth therein; (2) approved the Merger Agreement, the Merger, the other transactions contemplated by the Merger Agreement, the execution and delivery of the Merger Agreement by Splunk, the performance by Splunk of its covenants and other obligations thereunder, and the consummation of the Merger upon the terms and conditions set forth therein; and (3) resolved to recommend that Splunk Stockholders adopt the Merger Agreement in accordance with the DGCL.
Later in the day on September 20, 2023, Cisco and Splunk executed and delivered the Merger Agreement and Cisco, Splunk and H&F executed and delivered the Voting and Support Agreement.
Early in the morning on September 21, 2023, the parties issued a press release publicly announcing the proposed transaction.
Recommendation of the Board of Directors
The Board of Directors has unanimously: (i) determined that it is in the best interests of Splunk and Splunk Stockholders, and declared it advisable, to enter into the Merger Agreement in accordance with the DGCL and consummate the Merger upon the terms and subject to the conditions set forth in the Merger Agreement; (ii) approved the execution and delivery of the Merger Agreement by Splunk, the performance by Splunk of its covenants and other obligations under the Merger Agreement, and the consummation of the Merger upon the terms and subject to the conditions set forth in the Merger Agreement; and (iii) resolved to recommend that Splunk Stockholders adopt the Merger Agreement in accordance with the DGCL.
The Board of Directors unanimously recommends that you vote: (1) “FOR” the adoption of the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.
Reasons for the Merger
In the course of reaching its determination and recommendation, the Board of Directors consulted with Splunk management, Skadden, Qatalyst Partners and Morgan Stanley. The Board of Directors considered a number of factors, including those below (which are not listed in any relative order of importance), all of which it viewed as generally supporting its (i) approval of the execution and delivery of the Merger Agreement by Splunk, the performance by Splunk of its covenants and other obligations under the Merger Agreement, and the consummation of the Merger upon the terms and subject to the conditions set forth in the Merger Agreement; and (ii) resolution to recommend that Splunk Stockholders adopt the Merger Agreement in accordance with the DGCL:
• | the current and historical market prices of Splunk common stock, including the market performance of the Splunk common stock relative to those of other participants in Splunk’s industry and general market indices, and the fact that the Per Share Merger Consideration constituted a premium of approximately 31% over Splunk’s closing stock price of $119.59 on September 20, 2023 (the trading day prior to the public announcement of the Merger), and a premium of approximately 38% over Splunk’s 30-day volume-weighted average closing share price through that date; |
• | the comparably low price per share at which many Splunk Stockholders acquired their stock compared to the Per Share Merger Consideration; |
• | the current and prospective business environment in which Splunk operates, including international, national and local economic conditions, the competitive environment and the likely effect of these factors on Splunk and the execution of Splunk’s standalone strategic plans; |
• | the belief of the Board of Directors, based upon the course of negotiations with Parent (as described in more detail under the section of this proxy statement captioned “—Background of the Merger”), that the Per Share Merger Consideration represents the highest price that Parent was willing to pay and that the terms of the Merger Agreement include the most favorable terms to Splunk, in the aggregate, to which Parent was willing to agree; |
• | the potential risk of losing the favorable opportunity with Parent in the event Splunk sought to pursue discussions with all third parties who may be interested in pursuing a strategic transaction with Splunk prior to entry into the Merger Agreement and the potential negative effect that such a process might have on Splunk’s business; |
• | the high degree of certainty that the closing would be achieved in a timely manner, in view of the terms of the Merger Agreement; |
• | the view of the Board of Directors that the Per Share Merger Consideration was more favorable to Splunk Stockholders on a risk-adjusted basis than the potential value that might result from other alternatives reasonably available to Splunk, based upon the Board of Directors’ extensive knowledge of Splunk’s business, assets, financial condition and results of operations, its competitive position and historical and projected financial performance, and the belief that the Per Share Merger Consideration represented an attractive and comparatively certain value for Splunk Stockholders relative to the risk-adjusted prospects for Splunk on a standalone basis; |
• | the oral opinion of Qatalyst Partners rendered to the Board of Directors, subsequently confirmed in writing, to the effect that, as of September 20, 2023, and based upon and subject to the various limitations, qualifications, assumptions 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 of the Merger Agreement by the holders of Splunk common stock (other than Parent or any Affiliate of Parent) was fair, from a financial point of view, to such holders, as set forth in such opinion as more fully described below in the section of this proxy statement captioned “—Opinion of Qatalyst Partners” which full text of the written opinion is attached as Annex C-1 to this proxy statement and is incorporated by reference in this proxy statement in their entirety; |
• | the financial analyses presentation and the oral opinion of Morgan Stanley rendered to the Board of Directors, subsequently confirmed by delivery of its written opinion, that, as of September 20, 2023, and based upon and subject to the various limitations, qualifications, assumptions and other matters, the Per Share Merger Consideration to be received pursuant to the Merger Agreement by the holders of shares of Splunk common stock (other than the holders of the Excluded Shares) was fair, from a financial point of view, to such holders of Splunk common stock, as more fully described below under the section of this proxy statement captioned “—Opinion of Morgan Stanley & Co. LLC,” which full text of the written opinion is attached as Annex C-2 to this proxy statement and is incorporated by reference in this proxy statement in their entirety; |
• | the reputation, management and financial resources of Parent and its extensive history of successfully completing transactions, as well as the existing and positive commercial relationship between Splunk and Parent; |
• | the terms and conditions of the Merger Agreement and the other transaction documents, including the following: |
○ | Splunk’s ability to terminate the Merger Agreement in order to accept a Superior Proposal, subject to certain conditions of the Merger Agreement and paying Parent a termination fee of $1,000,000,000 if the Merger Agreement is terminated—an amount which the Board of Directors believed, based upon the advice of its financial and legal advisors, was unlikely to deter third parties from making Acquisition Proposals; |
○ | the conditions to closing contained in the Merger Agreement, which are limited in number and scope, and which, in the case of the condition related to the accuracy of Splunk’s representations and warranties, is generally subject to materiality or a Company Material Adverse Effect (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Representations and Warranties”) qualification; |
○ | the requirement that the Merger Agreement be adopted by the affirmative vote of the holders of a majority of the outstanding shares of Splunk common stock; |
○ | the fact that Splunk has sufficient operating flexibility to conduct its business in the ordinary course prior to the consummation of the Merger; |
○ | the provision of the Merger Agreement allowing the Board of Directors to effect a Change of Recommendation and to terminate the Merger Agreement, in certain circumstances relating to the presence of a Superior Proposal (or to effect a change of recommendation in response to an intervening event) subject to the applicable procedures, terms and conditions set forth in the Merger Agreement (including, if applicable, payment of a termination fee) (for more information, see the sections of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—The Board of Directors’ Recommendation Change; Change of Recommendation,” “Proposal 1: Adoption of the Merger Agreement—Termination of the Merger Agreement” and “Proposal 1: Adoption of the Merger Agreement—Termination Fees”); |
○ | the absence of a financing condition in the Merger Agreement and confirmation that Parent has, and will have at the Effective Time, sufficient funds available to consummate the Merger; |
○ | the end date of March 20, 2025; |
○ | the requirement that, in the event of a failure of the Merger to be consummated under certain circumstances, Parent will pay Splunk a termination fee of $1,478,000,000, as more fully described under the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fees”; and |
○ | the fact that the Voting and Support Agreement terminates in the event that the Merger Agreement is validly terminated in any manner thereunder, as more fully described under the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—The Voting and Support Agreement.” |
The Board of Directors also considered a number of uncertainties and risks concerning the Merger, including the following (which factors are not necessarily presented in order of relative importance):
• | the fact that Splunk would no longer exist as an independent, publicly traded company, and Splunk Stockholders would no longer participate in any future earnings or growth and would not benefit from any potential future appreciation in value of Splunk; |
• | the risks and costs to Splunk if the Merger is not completed in a timely manner or at all, including the potential adverse effect on Splunk’s ability to attract and retain key personnel, the diversion of management and employee attention and the potential disruptive effect on Splunk’s day-to-day operations and Splunk’s relationships with customers, suppliers and other third parties, any or all of which risks and costs, among other things, could adversely affect Splunk’s overall competitive position and the trading price of its common stock; |
• | the requirement under certain circumstances that Splunk pay Parent a termination fee following termination of the Merger Agreement, including if the Merger Agreement is terminated by Splunk in order to enter into a Superior Proposal or by Parent because the Board of Directors effects a Change of Recommendation; |
• | if Parent fails to complete the Merger as a result of a breach of the Merger Agreement in certain circumstances, remedies may be limited to the termination fee payable by Parent described above, which may be inadequate to compensate Splunk for the damage caused, and if available, other rights and remedies may be expensive and difficult to enforce, and the success of any such action may be uncertain; |
