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United Internet to Buy Out KKR From Versatel

BERLIN (The Deal) -- German Internet services provider United Internet on Tuesday agreed to buy the controlling stake it doesn't already own in Berlin broadband provider Versatel from private equity house Kohlberg Kravis Roberts & Co. for 947 million euros ($1.25 billion) including debt.

United Internet, of Montabaur, Germany, said it would pay 586 million euros in cash and absorb 361 million euros of Versatel debt in exchange for KKR's 74.9% Versatel stake.

KKR bought the-then publicly traded Versatel after striking a 2011 agreement with major shareholders Apax

Partners LLP and Cyrte Investments BV as well as United Internet that valued the target at 295 million euros. United Internet, which is led by CEO Ralph Dommermuth, retained an option to buy back into Versatel and bought its one-quarter holding in 2012.

Versatel is Germany's No. 2 fiber network operator behind Deutsche Telekom AG. It has a countrywide network of 37,000 kilometers, providing broadband to about 440,000 customers. United, which offers e-mail and corporate Internet services, wants to merge its services with Versatel's network to save a forecast 55 million each year.

United Internet said it would also spend an additional 165 million euros through 2019 to expand Versatel's network. The target expects sales this year of 548 million euros, about level with 2013, resulting in Ebitda of 164 milllion euros, up from 155 million euros in 2013.

"The complete acquisition of Versatel by United is prudent from both a strategic and a financial angle. The price is fair even without considering potential synergies and the corporate business could develop into a growth engine," wrote DZ Bank AG analyst Karsten Oblinger in a note. He has a buy rating on United's shares.

It's the second deal in recent weeks for United Internet. Last month it agreed to buy 10.7% of Berlin Web incubator Rocket Internet GmbH. United would pay 333 million euros in cash and an additional 105 million euros by folding in its minority stake in Munich venture capitalist Global Founders Capital for the stake.

Several Rocket partners have exchanged stakes in joint companies for shares in Rocket as the company prepares for an expected initial public offer next month. United's stake was cut to 10.4% when publisher Verlagsgruppe Georg von Holtzbrinck GmbH swapped stakes in Rocket startups for a minority holding in the parent.

The Versatel acquisition is expected to close in October.