UPDATE 1-Deutsche Telekom buys freenet's Strato unit

* Deutsche Telekom to pay 275 mln eur in cash

* Strato to contribute to net profit, free cash flow

* Deutsche Telekom shares up 0.2 pct, freenet down 1 pct

(Adds details, background)

FRANKFURT, Nov 19 (Reuters) - Deutsche Telekom (DTEGn.DE) will become Germany's No. 2 player in webhosting products by buying freenet's (FNTGn.DE) Strato unit for 275 million euros ($412 million) in cash.

"Strato complements our activities in the hosting area perfectly and will make a positive contribution to net profit and free cash flow from the very first day of consolidation," Deutsche Telekom board member Niek Jan van Damme said in a statement on Thursday.

A source close to the sales process had told Reuters in June that freenet was hoping to fetch 300-400 million euros for the division, which employs around 500 staff.

Deutsche Telekom beat out other bidders, which according to sources had included private equity company Bridgepoint Capital Ltd [BRDG.UL] and one other strategic investor at the end of October.

Shares of Deutsche Telekom were up 0.2 percent at 9.70 euros by 0811 GMT, while freenet was down 1 percent at 9.61 euros. (Reporting by Maria Sheahan, Editing by Michael Shields)