Another American firm has made a bid to buy up one of Nortel's key parts.
Ciena is offering a total of US$521 million for Nortel's Optical Networking and Carrier Ethernet businesses.
Ciena's offer, which includes $390 million in cash and 10 million Ciena shares, is the opening bid in a process that is expected to attract a number of offers from some of the world's biggest telecom firms.
As part of the agreement, Ciena will retain about 2,000 Nortel employees, laying off the remaining 15 per cent of the workforce.
Ciena's CEO said the bulk of employees affected by the deal are in Ottawa, where more than 1,000 jobs will be kept.
"The combination would create our largest research and development centre in the world," CEO Gary Smith told CTV Ottawa on Wednesday.
The deal would double Ciena's workforce, making offices in Ottawa an integral part of the company. The firm already has development facilities in Georgia, Maryland, California, Washington and India.
"The ecosystem in Ottawa, not just Nortel and Ciena operations, is a very key part of this deal," said James Frodsham, Ciena's senior vice president of corporate development.
Ciena stock prices fell after word of the bid broke a few days ago. Some analysts say the deal may be too much for the company to handle. However, Smith is disputing that assumption.
"We have a strong balance sheet, we can spend the money to make the integration work, this is too good fit for us to accelerate our growth in the next few years and we can handle it," said Smith.
Nortel is yet to set a deadline for other bids to be submitted. However, Nortel executives insist the Ciena deal would be beneficial to the divisions and their employees.
"Today's announcement is a positive step forward for the future of Nortel's Optical Networking and Carrier Ethernet customers and employees," Philippe Morin, Nortel's president of Metro Ethernet Networks, said in a statement. "The sale of these businesses to a strong and stable buyer enables the innovation of one of the foremost leaders in the optical industry to continue to thrive."
Although a deal appears to be in the works, it's far from complete. The bid is a so-called "stalking horse asset sale agreement," meaning Nortel will use the offer to kick-start an auction for the units.
It is expected companies such as Nokia, Cisco and possibly Ericsson, which bought Nortel's wireless division, could also come forward with an offer.
Ciena's US$521-million bid is less than half of what Nortel asked for the sale of the Metro Ethernet division more than a year ago. Some analysts say the division alone could go for as much as US$1.5 billion at auction.
Observers predict an auction will take place by the end of October, with a deal being completed sometime next month.
Following the sale, the only major Nortel units yet to be sold will be the company's Carrier Networks, as well as its partnership with LG.
Nortel, which was once a leading telecommunications company, has sold off portions of its businesses piece by piece since it began insolvency proceedings in January.
While the sales have preserved thousands of jobs, thousands more Nortel employees in Canada and overseas have been let go since late last year.
Many former employees and pensioners have said they feel victimized by Nortel's financial difficulties and subsequent restructuring.
A group of them were scheduled to protest outside the Ontario legislature on Wednesday, while another protest is set to take place on Parliament Hill on Oct. 21.
With a report from CTV Ottawa's Paul Brent and files from The Canadian Press
