UPDATE 2-Ciena raises bid for some Nortel assets-sources

* Ciena raises offer to $714 million-sources

* Raises cash component to $500 mln, adds debt-sources

* Auction for metro ethernet assets ongoing-sources (Adds analyst comments, details on Ciena bid, byline)

By Anupreeta Das

NEW YORK, Nov 22 (Reuters) - Ciena Corp (CIEN.O) has raised its offer for Nortel Networks Corp's optical networking and carrier ethernet business to $714 million, sources familiar with the matter said on Sunday, as the auction for these assets entered its third day.

Ciena's new bid now consists of $500 million in cash and $214 million in convertible notes, the sources said, speaking on condition of anonymity since details of the auction have not been made public.

Last month, the U.S. network equipment maker announced that 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 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 Nov. 18, another source familiar with the sale told Reuters that Nokia Siemens Networks [NSN.UL] and private equity firm One Equity Partners had also jointly bid for the assets. [ID:nN18125510]

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. [ID:nL3695532]

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 $902.4 million it earned in the same period.

In a Nov. 19 research note, UBS analyst Nikos Theodosopoulos wrote that Ciena would have to raise its offer, but if the price for the assets escalates above $750 million during the auction, Ciena is likely to walk away.

With total cash and securities of just over $1 billion and $798 million of debt on its balance sheet, according to regulatory filings, Ciena could find it difficult to keep raising its bid.

Its latest offer includes the issue of $214 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.

Ciena's offer values the unit at around 0.6 times annual sales, which is a "fair price" compared to the multiples paid for other Nortel assets, said Earl Lum, president of EJL Wireless, a wireless infrastructure research firm.

He added that a multiple of 0.8 times sales "would be a pretty good premium to the market," indicating that Nokia Siemens and One Equity, which manages $8 billion in investments for JPMorgan (JPM.N), could yet come in with a higher bid.

Winning these Nortel assets would help Nokia Siemens, a 50-50 joint venture of Nokia (NOK1V.HE) and Siemens AG (SIEGn.DE), expand its U.S. presence. The company has said North America along with India, Japan and China, are its four top growth targets. ((Reporting by Anupreeta Das, editing by Maureen Bavdek, Gary Crosse)) ((anupreeta.das@thomsonreuters.com; +1-646-223-6224))