Rocket Lab Sold $1.9 Billion of New Stock to Pay for Iridium. Here's the Dilution Math.

Rocket Lab (NASDAQ:RKLB) said on Sept. 15 that its pending acquisition of satellite operator Iridium Communications (NASDAQ:IRDM) is fully funded. The space company completed a $1.94 billion at-the-market stock sale (about 29.3 million new shares). And it terminated the $3.6 billion bridge loan it had lined up in late June to backstop the deal.

In other words, Rocket Lab decided to pay for the cash portion of the acquisition by selling pieces of itself instead of borrowing billions. I think that was the right choice for a business that isn't yet profitable. But the choice has a cost, and it can be counted in shares.

Image source: Getty Images.

How much dilution?

Rocket Lab reported about 598 million common shares outstanding as of Aug. 5 in its latest quarterly filing. Selling about 29.3 million new shares against that base works out to dilution of about 5%. (Count the preferred shares that convert one-for-one into common -- about 41 million -- and it's closer to 4.5%.)

The sale price matters, too. The shares went out at an average of about $66 each -- a bit below the roughly $69 the stock fetches as of this writing, and less than half the $151 peak reached within the past year.

As for the money, the deal values Iridium at about $8 billion including debt, and shareholders are set to receive $27 per share in cash when it closes. With about 106 million Iridium shares outstanding, the cash portion comes to about $2.9 billion.

The stock sale covers about two-thirds of that. Cash and short-term investments (about $2.3 billion at the end of June) can cover the rest, plus fees and some Iridium debt Rocket Lab plans to repay.

Skipping the loan was the safer move

The alternative was borrowing. When the acquisition was announced in late June, Rocket Lab lined up a $3.6 billion bridge loan from Deutsche Bank and Wells Fargo.

The senior secured loan had a 364-day term. Its job was to guarantee the money would be there at closing.

Rocket Lab is still a money-losing company, though. Its second-quarter net loss was $49.3 million, narrower than the $66.4 million loss it posted a year earlier but a loss all the same. A $3.6 billion loan due within a year of closing would have needed to be refinanced fast, at whatever rates lenders offered, by a business that doesn't yet generate profits.

Sure, Iridium's own business could have helped service that debt. The satellite operator produced about $872 million of revenue in 2025 and about $495 million of operational earnings before interest, taxes, depreciation, and amortization (OEBITDA), a 57% margin. But Iridium brings debt of its own: Its $1.8 billion term loan will stay in place after the deal closes, with lenders signing off on the ownership change and Rocket Lab guaranteeing the debt. Using the $3.6 billion bridge to refinance that loan and help cover the cash would have left the combined company deep in debt in a capital-hungry industry.

I'd argue trading about 5% of the company to avoid that outcome is the better deal.

After all, the business keeps setting records. First-quarter revenue was about $200 million. The second quarter stepped up to a record $234 million, up an impressive 62% year over year. Management's third-quarter guidance of $250 million to $265 million calls for yet another high.

Momentum like that helps explain how Rocket Lab could sell $1.9 billion of stock in about a month.

The share count isn't done growing

The stock sale only covers the cash half of the deal. Iridium shareholders will also receive Rocket Lab stock at closing -- between 0.24 and 0.40 shares for each Iridium share they own, depending on the stock's price at the time. Across Iridium's share count, that works out to between 25 million and 42 million additional shares.

Add it all up, and the deal could ultimately add about 72 million shares, growing the count as much as 12% from its Aug. 5 level.

And the closing is still a ways off. Iridium shareholders are scheduled to vote on the deal on Sept. 24, but the companies don't expect the merger to be completed until mid-2027, pending regulatory clearances.

Ultimately, I think Rocket Lab handled the financing well. Selling stock at about $66 beats owing $3.6 billion that would have come due within a year of closing. After all, for a company still posting losses, a stronger balance sheet is arguably worth the dilution.

That said, a stronger balance sheet doesn't make the stock cheap. At about $69 per share, Rocket Lab carries a market value above $40 billion -- more than 40 times its annualized revenue.

Sure, the financing looks smart. But my view of the growth stock hasn't changed. I would avoid buying shares at this price.

Wells Fargo is an advertising partner of Motley Fool Money. Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.