Verizon Communications Inc. (NYSE:VZ) sealed an agreement to acquire the 45% stake owned by Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) in a Verizon Wireless joint venture for $130 billion. The deal allows the U.S. telecommunications carrier to unleash new strategies to boost its asset mix and value over the long-term, according to analysts at Citi Research.

Verizon

Verizon deal structure

According to Citi Research analysts Michael Rollins and Simon Weeden, Verizon Communications Inc. (NYSE:VZ) used a cleaner deal structure to pay for the transaction with cash and common stock. However, the analysts noted that the EPS accretion guidance of approximately 10% provided by the company below their estimate.

Rollins and Weeden said their base-cased EPS accretion expectation for Verizon Communications Inc (NYSE:VZ) is 19% and their estimate based on the terms of the transaction is around 15%, which roughly include twice the amount of common stock that will be issued to Vodafone Group Plc (NASDAQ:VOD) (LON:VOD).

Verizon’s EPS accretion guidance

Despite the lower EPS accretion guidance, Rollins and Weeden projected that Verizon Communications Inc. (NYSE:VZ) will experience solid wireless growth, and its wireline cash flow is expected to improve by 2014. The company will be able to unlock new strategic explorations to enhance asset mix and value over time despite the risk of increasing volatility in stock price near-term by using a greater amount of stock than anticipated in the deal.

Rollin and Weeden said that Verizon Communications Inc. (NYSE:VZ) might be able to transform itself as a wireless + enterprise provider in the telecoms service if it will be able to find ways to monetize its residential copper and fiber-based FiOS assets without harming its ability to maintain last mile access to business customers in the Northeast.

In addition, the analysts emphasized, “The structure is cleaner without the use of wireless preferred stock, which should increase its future financial and strategic flexibility. Rollins and Weeden maintained their buy rating for the shares of Verizon Communications Inc. (NYSE:VZ), but they reduced their price target to $53 based on lower EPS accretion in the first year. The analysts applied an 11% accretion to their EPS estimate for the fiscal 2014.

Vodafone stocks attractive

On the other hand, Rollins and Weeden said that Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) is an attractive target for potential buyers such as AT&T Inc. (NYSE:T), Softbank Corp (TYO:9984) (OTCMKTS:SFTBF), and America Movil SAB de CV (NASDAQ:AMOV) (NYSE:AMX).

The analysts raised their price target for the shares of Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) to 230p based on their valuation on Verizon Communications Inc. (NYSE:VZ) stake at $110 billion net of tax (assuming a tax of $5 billion) and due to increase in European multiples due to improved regulatory outlook and increased prospects of potential bid interest.

Alex Khutorsky, managing director of The Valence Group, an M&A advisory investment bank, says, “I believe the recent large deal activity is simply symptomatic of a more robust deal environment at all levels. All of the requirements for a healthy M&A market are in place – improving economy, rising confidence among corporate executives, and ready access to capital (whether it’s cash-on-hand, equity or debt).”