Canada's Nortel Networks said on Wednesday it has agreed to a stalking horse offer from U.S. network specialist Ciena Corp to buy its optical networking and Internet infrastructure businesses for $521 million.

The cash and stock offer includes all assets of the businesses, called metro ethernet, globally as well as patents and other intellectual property.

A stalking horse offer sets a floor price for assets being sold. Nortel may receive competing bids but any other prospective purchaser would have to pay more.

Ciena has offered to pay $390 million in cash and another 10 million common shares. Ciena shares were up 1.2 pct at 13.20 on Nasdaq on Wednesday.

Nortel, once North America's biggest telecommunications equipment company, filed for bankruptcy protection in January, and is selling off its assets rather than trying to restructure.

The Toronto-based company has already sold a group of its wireless assets to Sweden's Ericsson for $1.13 billion. Its enterprise business is being sold to U.S.-based Avaya Inc for about $900 million.

Ciena said on a conference call that it planned to keep at least 2,000 Nortel employees, more than 85 percent of the number now working at these Nortel businesses. That would almost double Ciena's current work force of about 2,110 employees spread out across Canada, the United States and India.

Ciena expects to incur integration costs of about $180 million with most of that incurred in 2010, but said it expects the deal to be beneficial to its financial results by 2011.

This business is one that we do understand and is really very much in our wheelhouse, a Ciena official said on a conference call with analysts.

The transaction is subject to a competitive bidding process and requires the approval of the United States Bankruptcy Court for the District of Delaware and the Ontario Superior Court of Justice.

The assets to be acquired generated about $1.36 billion in revenue for Nortel in 2008 and $556 million in the first six months of 2009.

($1=$1.06 Canadian)

(Reporting by Scott Anderson; editing by Peter Galloway)