There seems to be no stopping Europeans from throwing money around for U.S. telecom start-ups.



, the U.S. subsidiary of the German telecom giant


, set plans to acquire Westford, Mass.-based


, one of several networking start-ups based northeast of Boston.

Redstone entertained bids from






for roughly $400 million early this month, according to one person familiar with the matter. Siemens, however, won the bidding war for Redstone by offering roughly $500 million in cash -- more than $6 million per employee -- says another source.

Unisphere vice president Ken Davison declined to comment on the price or rival bids, saying simply that negotiations were "competitive."

"They have to buy it because there's no time," says Barry Fidelman, general partner with

Atlas Venture

. "The networks are being designed now." Atlas is a venture capital investor in

Castle Networks

, due to be acquired by Siemens' Unisphere division as well.

Last summer Siemens started talking with Redstone about a distribution agreement; early this year, it suggested an acquisition.

Redstone has generated considerable

interest among acquisitive telecom concerns, the Europeans in particular. But the recent acquisition trend suggests that these companies are getting bought up at an earlier stage and for much higher prices than anyone expected. Players such as Alcatel and Siemens, as well as U.S. companies like Lucent,


(CSCO) - Get Report

and even


(CIEN) - Get Report

are desperate not to lose the lead in developing faster data networks.

Next month, Redstone will ship a router that enables phone carriers to expand their networks while adding advanced services such as video conferencing and Internet-based voice calls. Potential customers include




Level 3




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, which are building voice and data networks from scratch. Redstone's routers compete with data-networking leader Cisco. Redstone CEO Jim Dolce says his company has developed a silicon chip that works more efficiently than the software guiding Cisco's routers. Cisco did not return a call for comment.

David Schantz, general partner with

Matrix Ventures

(which is invested in Redstone), says three years ago, networking start-ups often sold for $100 million to $250 million. Today many prices exceed $400 million. Schantz didn't discuss Redstone's deal in particular.

On Monday, Ciena said it will spend $980 million in stock on




, which don't even have a product ready yet. Like Siemens with Redstone, Ciena also agreed to pay more than $6 million per employee.

Steve Chaddick, senior vice president with Ciena, says the deal prices might have increased sharply if he'd waited. Still, "the valuations are irrelevant" if either one of the acquisitions works as planned.