Deutsche Telekom drops out of bidding for Host Europe: sources

FRANKFURT (Reuters) - Deutsche Telekom DTEGn.DE has withdrawn from the bidding for European web hosting provider Host Europe Group, which has been put up for sale by private equity owner Cinven [CINV.UL], two people close to the matter said.

People walk past the logo of German telecommunications giant Deutsche Telekom AG seen at the Telekom's headquarters in Bonn February 25, 2016. REUTERS/Wolfgang Rattay/File Photo

Host Europe Group (HEG), which serves mainly small and medium-sized businesses, is one of Europe’s largest independent web hosting firms and is likely to be valued at around 1.7 billion euros ($1.8 billion), two persons familiar with the matter said.

Cinven bought HEG in 2013 for 438 million pounds ($545 million) and expanded the business with a series of bolt-on acquisitions for undisclosed amounts.

Deutsche Telekom decided not to pursue a deal due to the likely valuation, a lack of enough organic growth prospects and potential problems with integrating HEG within its existing business, which includes web hosting arm Strato, the sources said.

German Internet services provider United Internet UTDI.DE, which has teamed up with private equity firm Warburg Pincus [WP.UL], is now seen as the most likely winner of the HEG auction, although private equity firm Centerbridge and web hosting firm Godaddy GDDY.N also remain in the race, other people close to the matter added.

Last week United agreed to sell a 33.3 percent stake in its own web hosting subsidiary Business Applications to Warburg Pincus for 450 million euros, valuing the business at 2.55 billion euros.

Permira, which had teamed with Interroute, part-owned by investor Aleph Capital, has also dropped out of the bidding for Host Europe, one of the sources said.

A spokesman at Deutsche Telekom declined to comment.

Officials at Cinven, United Internet, Warburg Pincus, Permira, Godaddy and Centerbridge also declined to comment.

No one at Interroute was immediately available to comment.

HEG is expected to fetch a valuation of more than 12 times its core earnings of 140 million euros, giving it a valuation of about 1.7 billion euros, including debt, a person familiar with the talks said.

Additional reporting by Alexander Heubner; Editing by Tina Bellon, Greg Mahlich