Nortel names potential metro Ethernet buyer

Nortel Networks Corp., which has agreed to sell its carrier wireless and enterprise divisions, is working on an agreement to sell other assets to Ciena Corp.

Toronto-based Nortel said this week it is in “advanced discussions” to sell “substantially all assets” in both the optical networking and carrier Ethernet businesses to Ciena.

Neither company would elaborate Tuesday on a press release.

“The outcome of these discussions is uncertain and subject to negotiation of definitive agreements,” the companies stated. “Any agreements would be subject to a competitive bidding process to be approved by the United States Bankruptcy court for the District of Delaware and the Ontario Superior Court of Justice.”

Any agreement made by the companies would constitute a “stalking horse” bid, meaning other companies could make higher bids. This is what happened with both the carrier wireless and enterprise deals. Avaya announced a stalking horse bid in July for US$475 million and had to increase its offer to US$915 million because two other companies – rumoured to be Siemens Enterprise Communications and MatlinPatterson – participated in the auction.

The agreement to sell the CDMA assets to Ericsson started with a stalking horse bid from Nokia Siemens Networks in June.

Nortel announced this week it is also auctioning off its wireless assets based on the global system for mobile communications (GMS) standard.

Nortel has been operating under bankruptcy protection since Jan. 14 and has been trying to sell its business assets in order to pay off bondholders, employees who are owed severance and other creditors. Nortel initially tried selling its metro Ethernet assets a year ago but took them off the auction block.

This week’s announcement was the first time Nortel named a potential buyer of its metro Ethernet business.

It was not immediately clear whether this sale would involve just intellectual property or whether Ciena would the buyer be taking on Nortel employees and facilities as well.

“Nortel cannot comment on the potential values or details of any potential agreement with Ciena or other third party,” a spokesman stated in an e-mail to Network World Canada.

Courts in Canada and the U.S. approved a sale of Nortel’s enterprise assets to Avaya Inc. of Basking Ridge, N.J. for US$915 million. That sale is still subject to approval by the U.S. and Canadian governments.

The courts have also approved the sale of part of Nortel’s cellular base station business to LM Ericsson of Sweden for US$1.13 billion. Ericsson will get Nortel’s code division multiple access (CDMA) wireless business, plus a non-exclusive license for Nortel’s Long Term Evolution wireless patents.

Ciena is based in Linthicum Maryland, located south of Baltimore. Ciena’s products include service delivery switches, service aggregation switches and Ethernet Services Manager, which are used to  provide backhaul for Clearwire’s WiMAX service in Las Vegas.

Founded in 1992 as a manufacturer specializing in long haul products using dense wavelength division multiplexing, Ciena branched out into other networking segments, including access products for metropolitan and enterprise networks, starting in 2001.

As of July 31, the company reported it has US$436 million in cash and lost US$554 million during the nine months ending July 31. Of that, the firm lost US $26.5 million during the most recent quarter.

The company has had the same president, Gary B. Smith, since October, 2000. Smith, who was also appointed chief executive officer  in 2001, has been with Ciena for 12 years.

The company’s chief operating officer, Arthur Smith, was an optoelectronics research engineer with Nortel from 1988 until 1997, when he joined Ciena.

Nortel built up its optical networking business partly through acquisitions. For example, in 2000, Nortel bought Qtera for US$3 billion, so it could make products that would transport signals more than 4,000 km at 10 Gbps without using optical-electrical converters. That same year, Nortel bought photonic switching maker Xros for US$3.25 billion and Wilmington, Mass.-based CoreTek, which made vertical cavity surface emitting laser and micro-electromechanical systems for optical networking,  for US$1.43 billion worth of stock.