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FRANKFURT (Reuters) - German internet service provider United Internet has agreed to buy web hosting business Strato from Deutsche Telekom for around 600 million euros (501.43 million pounds) in cash, after losing out in an auction for Host Europe Group this month.
The acquisition will add more than 2 million customer contracts and almost 130 million euros in annual sales to United Internet's business.
"The acquisition of Strato will enable us to expand our leading market position in the European hosting and cloud application business and drive the consolidation of a market which is currently still strongly fragmented," United Internet Chief Executive Ralph Dommermuth said in a statement on Thursday.
The deal, to be done via a new holding United Internet recently formed with Warburg Pincus, values Strato at 12.4 times earnings before interest, tax, depreciation and amortisation.
Some 566 million euros of the purchase price, to be paid in 2017, will be funded by a 350 million euro loan from United Internet and by equity capital to be provided by United Internet and Warburg Pincus, United Internet said.
The remaining 34 million euros will be due at a later point subject to certain performance goals, it said.
Shares in United Internet were up 3 percent at 36.40 euros by 0830 GMT, while Deutsche Telekom's were down 0.25 percent.
United Internet and Deutsche Telekom AG were both trumped this month by U.S. company GoDaddy in bids to buy independent web hosting firm Host Europe Group.
Reporting by Maria Sheahan; Editing by Tina Bellon and Susan Thomas