Major Milestone Passed In Iridium/Rocket Lab Tie Up

Rocket Lab (NASDAQ:RKLB) and Iridium (NASDAQ:IRDM) have taken a significant step toward fusing their businesses together. Late Thursday afternoon, both companies announced in a joint press release that Iridium shareholders voted in favor of an acquisition by Rocket Lab. The "yes" vote was overwhelming, with voters representing 81% of Iridium's outstanding common shares in favor of the move.

The news came barely over two months after Rocket Lab and Iridium announced they agreed to what was termed a merger, which in reality is an acquisition by the former company. Let's go over the current state of the situation, and gaze into the crystal ball to see how it'll change the bulked-up Rocket Lab.

Image source: Getty Images.

8 billion reasons to get excited

The terms of the deal stipulate that Iridium investors are to receive $27 in cash for each of their shares. They'll also be given a number of Rocket Lab shares, yet to be determined, to bring the payout up to the fixed acquisition price of $54 per share of Iridium stock. Zooming out, the total enterprise value is roughly $8 billion.

That's unchanged from the terms agreed in July when the two companies first announced their agreement. Similarly, they continue to expect the deal to close by the middle of next year. It remains subject to approval by the relevant regulatory bodies.

Both companies professed to be over the moon about the vote. Rocket Lab founder and CEO Peter Beck was quoted as saying that the poll's result draws the two "closer to combining Iridium's trusted global network, spectrum and decades of operating experience with Rocket Lab's extensive launch and space systems capabilities to unlock a new era of space applications."

For his part, Iridium CEO Matt Desch was quoted as saying that the pair have "complementary capabilities, a shared commitment to innovation, and deep experience supporting some of the world's most critical missions."

He added, "We look forward to completing the transaction and entering this exciting next chapter with Rocket Lab."

Calling on a competitive advantage

Iridium isn't the only satellite telephony company on the scene, but it remains a unique one. With its constellation of low-earth orbit (LEO) satellites operating in cross-polar orbits, it has 100% coverage over our entire planet. That sets it well apart from rival LEO broadcasters that must beam to both the user and the ground base station simultaneously to complete a connection.

The most prominent of those peers is Starlink, founded by Elon Musk and recently folded into the space/tech/telecom conglomerate he leads, Space Exploration Technologies (NASDAQ:SPCX)(SpaceX). That connectivity issue had strictly limited Starlink; however, lately, it's been upgrading its technology to start removing that roadblock. Starlink also has an advantage over Iridium in that it delivers a high-speed, low-latency signal ideal for web browsing, video streaming, etc.; Iridium is basically suitable only for low-bandwidth use, such as phone calls.

The rise of a rival

I emphasize the Iridium/Starlink rivalry because, assuming all goes smoothly and Rocket Lab absorbs the former, the merged company will be regularly compared to SpaceX.

Is that reasonable, though? Not necessarily. Rocket Lab's absorption of Iridium will add a major asset, to be sure. Still, the vertical integration of the combined businesses -- Rocket Lab's launch operations and spacecraft manufacturing, plus Iridium's well-established communications infrastructure -- is tight and complementary.

By contrast, SpaceX feels something like an everything-but-the-kitchen-sink collection of assets. There's the space business, sure, and Starlink, but also X (formerly Twitter), plus an artificial intelligence (AI) developer, and a data center builder and operator. I feel there's notably less cohesion and potential synergy in SpaceX's lineup.

Meanwhile, Iridium should pay for itself before long. In contrast to some of SpaceX's operations, it's a habitually profitable and cash-generating company, with nearly $300 million in free cash flow last year.

Rocket Lab says it's secured commitments for the non-stock portion of the deal, meanwhile, so with Thursday's successful Iridium shareholder vote, the acquisition appears to be a lock. Rocket Lab investors should be very pleased that this important deal is gaining serious altitude.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.