Splunk sold for $28 billion

Cisco to acquire Splunk for $157 per share in cash, or $28B EV

Cisco (CSCO) and Splunk (SPLK) announced a definitive agreement under which Cisco intends to acquire Splunk for $157 per share in cash, representing approximately $28B in equity value.

Upon close of the acquisition, Splunk President and CEO Gary Steele will join Cisco’s Executive Leadership Team reporting to Chair and CEO Chuck Robbins.

The transaction is expected to be cash flow positive and gross margin accretive in the first fiscal year post close, and non-GAAP EPS accretive in year two.

Additionally, it will accelerate Cisco’s revenue growth and gross margin expansion.

The transaction will not impact Cisco’s previously announced share buyback program or dividend program.

The acquisition has been unanimously approved by the boards of directors of both Cisco and Splunk. It is expected to close by the end of the third quarter of calendar year 2024, subject to regulatory approval and other customary closing conditions including approval by Splunk shareholders.

Splunk Inc, develops and markets cloud services and licensed software solutions in the United States and internationally. The company offers unified security and observability platform, including Splunk Security that helps security leaders fortify their organization’s digital resilience by mitigating cyber risk and meeting compliance requirements; and Splunk Observability, which provides visibility across the full stack of infrastructure, applications, and the digital customer experience.

SPLK is up 21% to $144.74. CSCO is down 4% to $53.25.

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What is FOMC’s next move?

The Fed says go, go, go, the markets’ say whoa, whoa, whoa

There is a lot of uncertainty on the Fed outlook and just how fast and how far will the FOMC go in hiking rates in orders to bring inflation down to the 2% average target.

Though Chair Powell gave no clear indication in last Wednesday’s press conference that the Fed was near done with its mission, the markets nevertheless heard what they wanted to hear, putting on a dovish spin and pricing in a pivot to rate cuts in the spring of 2023.

Fed Chair: Jerome Powell

But over the last week policymakers have been out in force, including several doves, strongly contradicting that outlook.

They have stressed the necessity of getting to restrictive territory while playing down the fear that the economy is already in recession.

Meanwhile, the U.S. ISM-NMI services index rose to 56.7 from a 2-year low of 55.3 in June that was last seen in February of 2021, translated to an ISM-adjusted ISM-NMI rise to 54.3 from a 2-year low of 53.7 in June.

Today’s rise joins big declines for the ISM, Chicago PMI, Dallas Fed and Philly Fed, but gains for the Richmond Fed and Empire State, to leave an 8-month producer sentiment pull-back from robust November peaks.

Surging interest rates and a flattening in real household spending as prices rise are aggravating the downtrend, though sentiment also faces support as businesses continue to restock.

The ISM-adjusted average of the major sentiment surveys in July fell to a 2-year low of 52 from prior lows of 53 in June and 54 in May. Analysts saw a 62 all-time high in both November and May of 2021. Analysts expect a 52 average in Q3, after averages of 55 in Q2, 57 in Q1, and 60 in Q4.

The futures are now repricing for about a 50-50 risk for a third straight 75 bp hike in September.

James Bullard
Federal Reserve Bank of St. Louis

Meanwhile, the hawk Bullard continues to look for a policy rate around 3.75% to 4% by year-end, though implied Fed funds still reflect a terminal rate in the 3.5% area.

Analysts continue to project a 50 bp boost in September followed by 25 bps in November and December to bring the median funds rate to 3.375%.

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Economic Activities Slowed in December

U.S. flash Markit PMIs all slipped in December

U.S. flash Markit Purchasing Managers Index’s (PMI) all slipped in December as activity eased amid well known headwinds such as capacity constraints and Omicron variant spread.

Flash Manufacturing PMI is an estimate of manufacturing for a country, based on about 85% to 90% of total Purchasing Managers’ Index (PMI) survey responses each month.

Any reading of the Flash Manufacturing PMI above 50 indicates improving conditions, while readings below 50 indicate a deteriorating economic climate.

The manufacturing index fell another -0.5 ticks to 57.8 in December after dipping -0.1 ticks to 58.3 in November. It is the weakest since the 57.1 last December.

The index has been sliding from the record high of 63.4 in July, but it remains in expansion for an 18th straight month.

New orders declined to 56.3 from 56.9, while supplier delivers increased to their best reading since May.

The preliminary services index also fell -0.5 ticks to 57.5 on the month following the -0.7 point decline to 58.0. The reading is above the 54.8 from a year ago, however, and has been above 50 since July 2020.

The business expectations component improved to its highest reading since November 2020.

Input prices climbed to 77.4 versus 75.7 last month and is at an all-time peak (data goes back to 2009).

The composite reading dipped -0.3 ticks to 56.9 from November’s 57.2 and was at 55.3 last December. Input prices increased to a new record level at 78.1 from November’s 77.6.

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Intel to spin off MobilEye

Intel confirms intent to take Mobileye public

The company (INTC) states: “Intel announced its intention to take Mobileye public in the United States in mid-2022 via an initial public offering of newly issued Mobileye stock.

The move will unlock the value of Mobileye for Intel shareholders by creating a separate publicly traded company and will build on Mobileye’s successful track record and serve its expanded market.

Intel will remain the majority owner of Mobileye, and the two companies will continue as strategic partners, collaborating on projects as they pursue the growth of computing in the automotive sector.

The share of semiconductors is expected to be 20% of a premium vehicle’s total bill-of-materials (BOM) by 20301.

The Mobileye executive team will remain, with Prof. Amnon Shashua continuing as the company’s CEO.

Amnon Shashua

Recently acquired Moovit as well as Intel teams working on lidar and radar development and other Mobileye projects will be aligned as part of Mobileye.

In the four years since Mobileye was acquired by Intel, Mobileye has experienced substantial revenue growth, achieved numerous technical innovations and made significant investments directed to solving the most difficult scientific and technology problems to prepare the deployment of autonomous driving at scale.

A final decision on the IPO and its conditions and ultimate timing is pending and subject to market conditions. Intel, as majority shareholder, will continue to fully consolidate Mobileye. The transaction is not expected to have an impact on Intel’s 2021 financial targets.”

INTC is up $1.34 to $52.30.

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NeoPhotonics sold for $918M

 Lumentum to acquire NeoPhotonics for $16 per share in cash

Lumentum (LITE) and NeoPhotonics (NPTN) announced that they have entered into a definitive agreement under which Lumentum will acquire NeoPhotonics for $16.00 per share in cash, which represents a total equity value of approximately $918M.

NeoPhotonics Corporation develops, manufactures, and sells optoelectronic products that transmit and receive high speed digital optical signals for cloud and hyperscale data center internet content provider and telecom networks worldwide.

Lumentum Holdings Inc. manufactures and sells optical and photonic products in the Americas, the Asia-Pacific, Europe, the Middle East, and Africa. The company operates in two segments, Optical Communications (OpComms) and Commercial Lasers (Lasers). 

Laser chips made by Lumentum

The transaction has been unanimously approved by the boards of directors of both companies.

The purchase price represents a premium of approximately 39% to NeoPhotonics’ closing stock price on November 3, 2021.

Laser chips made by NeoPhotonics

Lumentum intends to finance the transaction through cash from the combined company’s balance sheet.

Related to the transaction, Lumentum will provide up to $50M in term loans to NeoPhotonics to fund anticipated growth, which may require increased working capital and manufacturing capacity.

The transaction is expected to close in the second half of calendar year 2022, subject to approval by NeoPhotonics’ stockholders, receipt of regulatory approvals, and other customary closing conditions.

“With NeoPhotonics, we’re making another important investment in better serving our customers and expanding our photonics capabilities at a time when photonics are at the forefront of favorable long-term market trends. At the center of our strategy is a relentless focus on developing a differentiated portfolio with the most innovative products and technology in our industry so that we can help our customers compete and win in their respective markets.

Adding NeoPhotonics’ differentiated products and technology and innovative R&D team is consistent with this strategy and together, we will better meet the growing need for next generation optical networking solutions. We are confident this transaction will make us an even better partner to our customers, while enabling our team to deliver significant, long-term value to our stockholders. We look forward to welcoming NeoPhotonics’ talented team of employees to Lumentum,” said Alan Lowe, Lumentum President and CEO.

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