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Ciena Wins Nortel Carrier Ethernet, Optical Unit

At the core of the Internet's infrastructure are optical networking and carrier Ethernet technologies that provide bandwidth and connectivity. One of the leaders in the space has been Nortel Networks, but that is soon to change.

Nortel today announced that carrier networking vendor Ciena (NASDAQ: CIEN) has won the auction to acquire its optical and carrier Ethernet business. As a result, Ciena is poised to become a more direct competitor to industry leaders Alcatel-Lucent (NYSE: ALU), Cisco (NASDAQ: CSCO) and Juniper (NYSE: JNPR).

Through its winning bid, Ciena will pay a total of $769 million, made up of $530 in cash with $239 million in convertible notes, which are due in June of 2017. The bid represents an increase over Ciena's initial $521 million October bid for the Nortel assets, which set the auction's floor price.

Nortel has been in the process of selling off its assets ever since entering into bankruptcy protection at the beginning of 2009.

Despite the beleaguered networking vendor's financial troubles, its optical and carrier business is still generating revenues. The company's Optical Networking and Carrier Ethernet division posted revenues of approximately $1.36 billion in 2008 and $556 million in the first six months of 2009.

The unit, which develops and sells 40 Gbps OC-768 optical networking gear, will serve to expand on Ciena's existing core carrier networking business.

Nortel's Optical Networking and Carrier Ethernet division has also been actively developing its 100 Gigabit Ethernet (GbE) technology, which is the next-generation bandwidth speed for carrier networks. Ciena likewise has been active in the 100 GbE space, winning a contract to equip the New York Stock Exchange with its gear.

"Nortel's Optical and Carrier Ethernet assets are well-respected in the industry, as evidenced by strong customer relationships across the globe," Ciena President and CEO Gary Smith said in a statement. "By combining these assets with Ciena's existing resources, our collective customer base will be able to rely on one of the largest and most innovative companies strategically focused on converged Ethernet networking."

The Ciena deal is subject to court and regulatory approvals in the U.S. and Canada, with a joint U.S.-Canada court hearing currently scheduled for Dec. 2. Nortel and Ciena expect that the deal will officially close in the first quarter of calendar 2010. As part of the deal, Ciena will be taking on at least 85 percent of the Nortel Optical and Carrier Ethernet workforce, for a total of a minimum of 2,000 people.

For Nortel, the transaction represents but the latest in its ongoing asset sale. Earlier this month, Nortel completed the sale of its CDMA/LTE wireless assets to Swedish telecom vendor Ericsson for $1.13 billion.

Nortel is still in the process of closing the sale of its enterprise business unit, which is set to be acquired by Avaya for $900 million.