Ciena Corp will buy Nortel Networks Corp's optical networking and carrier ethernet business for $769 million after trumping Nokia Siemens Networks in a three-day auction, sources told Reuters on Sunday.

Last month, the U.S. network equipment maker announced it had made a stalking-horse offer for these assets of Nortel, the Canada-based telecommunications company that filed for bankruptcy in January and has been auctioning off assets.

The stalking-horse bid set a floor price, but Nortel was free to seek higher offers.

Ciena's winning offer consists of $530 million in cash and $239 million in convertible notes, one of the sources said, speaking on condition of anonymity since details of the auction have not been made public.

Ciena initially offered $390 million in cash and 10 million shares of Ciena stock, for a total deal value of $522 million, based on the Friday closing price of Ciena stock.

On November 18, another source familiar with the sale told Reuters that Nokia Siemens Networks and private equity firm One Equity Partners had also jointly bid for the assets.

Representatives for Ciena and Nortel did not return calls seeking comment. Nokia Siemens declined to comment.

CIENA LIKES THE DEAL

For Ciena, the purchase of these core assets in Nortel's metro ethernet networks business is an opportunity to increase sales.

The equipment manufactured by these companies is used to build the Internet infrastructure that supports corporate and residential networks.

But analysts and investors have been concerned that the deal will weigh down Ciena's operations, hurting the U.S. company's shares in recent weeks.

To integrate the potential acquisition, Ciena would have to swallow a unit that earned $1.36 billion in 2008 revenue -- higher than the $902 million it earned in the same period.

Ciena has total cash and securities of just over $1 billion and $798 million of debt on its balance sheet, according to regulatory filings.

Its latest offer includes the issue of $239 million in debt in the form of convertible notes. The interest rate for the senior notes, due June 15, 2017, is 6 percent, one of the sources said. Under the terms, the interest rate would increase gradually to 8 percent if Ciena's share price falls, this person said.

The final bid by Nokia Siemens Networks and One Equity, which manages $8 billion in investments for JPMorgan , came very close to Ciena's offer, the source said.

Winning the auction for these Nortel assets would have helped Nokia Siemens, a 50-50 joint venture of Nokia and Siemens AG , expand its U.S. presence. The company has said North America along with India, Japan and China, are its four top growth targets.

(Editing by Gary Crosse and Lincoln Feast)

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