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Cisco buying Md.-based BroadSoft for $1.9 billion cash

FILE - This Wednesday, May 9, 2012, file photo, shows an exterior view of Cisco Systems Inc. headquarters in Santa Clara, Calif. Cisco is buying BroadSoft for $1.9 billion in a move to bolster telecom technology. The deal is expected to close during the first quarter of 2018. (AP Photo/Paul Sakuma, File)

Cisco Systems Inc. is buying Gaithersburg-based BroadSoft for $1.9 billion in a move to bolster telecom technology. The deal is expected to close during the first quarter of 2018. (AP Photo/Paul Sakuma, File)

BroadSoft, the Gaithersburg-based company that handles the software used by phone carriers and large businesses to manage call conferencing, announced Monday that it is being sold to California-based telecommunications giant Cisco Systems as both companies seek to harness the changes brought by cloud computing.

The $1.9 billion deal represents a 2 percent premium over Friday’s closing stock price. The transaction is scheduled to close in the first half of 2018. The offer price is more than 25 percent higher than where BroadSoft shares were trading before Reuters reported on Aug. 30 that the company was exploring a potential sale.

Executives described the combination as a step to focus on group teleconferencing services, an expansion beyond the traditional routing hardware Cisco is best known for. Cisco has been building out its WebEx videoconferencing service for large businesses in recent years.

“We’ve seen firsthand how the agile workforce of today is transforming how work gets done, whether that’s virtually, on the move or in their physical work environments,” Cisco Senior Vice President Roland Acra said in a call with investors. “Our customers expect the tools from Cisco that will enable them to continue that transition.”

For BroadSoft, the deal brings one of the D.C. area’s biggest “exits” in recent memory. BroadSoft was founded in 1998 by two telecommunications executives and quickly built a software business targeting cable providers and phone carriers. In recent years, the company has tacked on new acquisitions in the Internet phone service industry, acquiring local start-ups Leonid Systems and mPortal.

BroadSoft operates in about 80 countries, according to its website. Founded in 1998 by former Alcatel USA vice president Michael Tessler and Celcore executive Scott Hoffpauir, the company went public in 2010. Tessler serves as chief executive officer.

Cloud computing technology, and the often cheaper global calling and videoconferencing it enables, has been a significant opportunity for traditional telecommunications companies.

Microsoft, one of Cisco’s close competitors in the business conference-call space, recently announced that it would end its Skype for Business offering in favor of a new product called Microsoft Teams. Microsoft had bought Skype for $8.5 billion in 2011 when it was a market-dominating consumer videoconferencing app.

Since then, the market for business-focused online collaboration tools has exploded, with companies like Slack, Google and Facebook competing for market share.

In a call with investors Monday, Cisco executives said the combination with BroadSoft would give the combined company a stronger hand as it competes with Microsoft.

Microsoft has “run into a brick wall with BroadSoft, frankly, at the lower end of their business,” said Rowan Trollope, a senior vice president at Cisco.

The deal gives Cisco a major new presence in a segment of the market it has been lacking in until now, said Jason Noah Ader, an analyst at William Blair & Co. Cisco already is a leading provider of communications for companies, but BroadSoft’s business is focused on providing those services through the internet and hosting them in the cloud.

“Cisco has been a little bit behind the curve there,” Ader said. Buying BroadSoft “allows them to be a leader in the cloud instead of a challenger.”