Cisco Systems, the world’s largest maker of networking equipment, announced on Thursday that it will acquire Splunk, a leading cybersecurity and artificial intelligence software company, for about $28 billion in cash.

This is Cisco’s biggest-ever deal and a major step in its transformation to a more software-focused business.

The deal values Splunk at $157 per share, which is 31% higher than its closing price on Wednesday. Splunk’s stock soared 23% in pre-market trading, while Cisco’s stock fell nearly 5%.

Cisco and Splunk said in a joint statement that the combination will create one of the world’s largest software companies and will boost Cisco’s revenue growth and gross margin in the first year after the deal closes. They also said that the deal will not require approval from China.

Splunk, which has more than 15,000 customers including Coca-Cola, Intel and Porsche, provides software that helps companies collect, analyze and secure data from various sources. Cisco already has a data-security partnership with Splunk and plans to integrate Splunk’s technology with its own cloud and networking products.

Splunk has faced some challenges in 2023 due to rising interest rates and inflation, which have dampened demand for software. Its revenue growth slowed down to nearly 40% last year, after reaching 60% in 2022.

The deal is expected to close by the end of the third quarter of 2024, subject to regulatory approvals. If the deal falls through, Cisco will have to pay a breakup fee of $1.48 billion.

Cisco was advised by Tidal Partners, Simpson Thacher & Bartlett and Cravath, Swaine & Moore. Splunk was advised by Qatalyst Partners, Morgan Stanley & Co, and Skadden, Arps, Slate, Meagher & Flom.