Verizon Communications Inc (NYSE:VZ) and Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) have been in talks for a deal over their joint venture Verizon Wireless for quite some time. Finally a deal is near, and Citi analysts say it’s a positive for investors of both companies, but especially for those investing in Verizon.

Verizon

Implications of a deal between Verizon, Vodafone

Analysts Michael Rollins, Simon Weeden, Noel Culhane and Kevin Toomey issued a research to investors after early reports about a deal between the two companies being close. They say the most likely scenario to resolve the joint ownership of Verizon Wireless is for Verizon Communications Inc (NYSE:VZ) to buy the 45 percent stake currently held by Vodafone Group Plc (NASDAQ:VOD) (LON:VOD).

Reports this week suggest that the deal may be worth $130 billion, but that’s toward the higher end of the range expected by Citi analysts. They said it could be worth between $120 and $135 billion.

What about accretion from the deal?

Citi analysts believe the potential accretion for Verizon Communications Inc (NYSE:VZ) in the first year of the transaction depends on the price the company ends up paying to acquire the rest of Verizon Wireless, the mix of capital sources used for the transaction and the cost of capital.

Based on their analysis, they believe earnings per share accretion will average around 19 percent and be within the range of 14 and 24 percent within the first year, assuming a leveraged buyout of Vodafone Group Plc (NASDAQ:VOD) (LON:VOD)’s stake in Verizon Wireless.

Verizon, Vodafone still Buy rated by Citi

They believe this potential for meaningful earnings per share accretion supports “favorable upside potential” for shares of Verizon, relative to the current share price. They maintained their Buy rating on Verizon because of favorable revenue and earnings per share growth for this year, as well as the accretion prospects of a deal to buy out Vodafone’s part of Verizon Wireless.

They also kept Vodafone on their European Focus List and see it as a beneficiary of potential consolidation in some key European markets.