Palo Alto Networks stock falls 7% after announcing $25 billion Cyberark deal

Palo Alto Networks will take over Israeli identity security provider CyberArk in a deal valued at roughly $25 billion.

The California-based cybersecurity company will pay shareholders $45 apiece for 2.2005 shares of CyberArk, representing a 26% premium to its share price Friday. The deal is expected to close during Palo Alto Networks' fiscal year 2026.

Shares of Palo Alto fell 7% Wednesday, building on a 5% loss from Tuesday. CyberArk's stock dipped about 1%.

Palo Alto CEO and chairman Nikesh Arora said in an interview with CNBC's "Squawk on the Street" on Wednesday that the company is entering the identity market as it hits an inflection point, which has always been its strategy.

"They are poised to go and disrupt this market and create the platform we need and also solve the upcoming problem with agentic AI," he said. "From all those factors, we believe this is the right time to do something like this and be ready for the market in the next 12 to 18 months."

Blockbuster cybersecurity deals have been a force in the mergers and acquisitions market in 2025 after a relatively slow period for dealmaking. In March, Google shelled out $32 billion for cloud security startup Wiz in its biggest acquisition ever.

Palo Alto Networks intends to use the deal to officially penetrate the identity security market and improve its offering for customers. Arora told CNBC that Palo Alto's scale can help accelerate the reach of CyberArk's platform.

CyberArk, which went public a little over a decade ago, creates identity software tools that grant employees access to platforms and applications. Its biggest competitors in the space include Okta and Microsoft.

As artificial intelligence advances, these tools have become more critical to protecting businesses against cyber and ransomware threats.

Since taking the helm of the company in 2018, Arora has bolstered the cybersecurity provider's offerings and swelled its market value to roughly $120 billion.

This year, Palo Alto bought startup Protect AI for an undisclosed amount to improve its AI tools. The company acquired Talon Cyber Security, Dig Security and Zycada Networks in 2023.

Arora said he expects ongoing consolidation in the cybersecurity space over the next five years.

"Our job is to get this done, execute, deliver to the market and show our shareholders that we have the ability to execute these kinds of transactions, which I firmly believe we do," he said.

The Wall Street Journal reported Tuesday that both companies had discussed a potential deal, sending shares of CyberArk skyrocketing more than 13%.

- CNBC's Jordan Novet and Ari Levy contributed to this article.