Nortel Networks Corporation announced Wednesday it has entered a deal to sell its most prized remaining business units to Ciena Corp. for US$521 million.

The deal, which includes $390 million in cash and 10 million Ciena shares, is for Nortel's Optical Networking and Carrier Ethernet businesses, as well technology that boosts the speed and capacity of fibre optic networks by as much as 10 times.

As part of the agreement, Ciena will retain about 2,000 employees, or more than 85 per cent of the workforce of the two business units.

"This is a unique and exciting opportunity for us to accelerate our existing strategy and the pace of our growth plans by two to three years," Ciena president and CEO Gary Smith said in a statement.

"We believe this transaction will position us for faster growth by giving us greater geographic reach, broader customer relationships and a deeper portfolio of solutions. We believe we are best positioned to leverage these assets, thereby creating a significant challenger to traditional network vendors."

The deal would double Ciena's workforce and make Ottawa the company's largest product and development centre. It also has development facilities in Georgia, Maryland, California, Washington and in India.

Nortel executives said the deal is 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."

But the sale is not a done deal. 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.

After Nortel files the agreement with the United States bankruptcy court in Delaware, other bidders will be allowed "to submit higher or otherwise better offers," the company said.

The company will also file a motion for approval of bidding procedures in Ontario Superior Court.

"What it is designed to do is to put that division in play so that other bids can be welcome," BNN's Michael Kane told CTV News Channel. "They're getting the ball rolling, as it were. So what we're waiting to see now is, from a business point of view, who else may step up to the plate and make a bid for these assets. They are going to be sold. Nortel has said everything must go."

According to Kane, the Ethernet and Optical Networking businesses are worth much more than $521 million. Some analysts say the Ethernet division alone could go for as much as US$1.5 billion at auction.

"If (Nortel) can't get a higher bid than ($521 million), then that is a real bargain for Ciena Corporation," Kane said.

Nortel, once a leading telecommunications company, has sold off portions of its businesses piece by piece since it began insolvency proceedings in January.

In a bit of good news for the company, the final sale prices for the previously auctioned business units have been considerably higher than the "stalking horse" bids.

Last month, the company announced it had sold its enterprise division to Avaya Inc. in a deal worth about US$900 million. Avaya's original bid was US$475 million, but the price went up during an auction that lasted several days. The deal is expected to close at the end of this year.

In July, Swedish telecom giant Ericsson successfully bid US$1.13 billion for Nortel's wireless division. That offer beat out the $650 million stalking horse bid from Nokia Siemens.

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 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 to take place on Parliament Hill on Oct. 21.

With files from The Canadian Press