TLDR
- Pentagon commits $1 billion to L3Harris rocket motor unit via convertible securities
- Missile Solutions business to become standalone public company in late 2026
- Stock surged 11.4% in pre-market trading after announcement
- First direct Pentagon investment in defense supplier under new strategy
- Deal structure raises conflict of interest questions with competitors
L3Harris Technologies landed a major vote of confidence from the Pentagon. The Defense Department will invest $1 billion in the company’s rocket motor business through convertible securities.
BREAKING: Pentagon to Invest $1 Billion in L3Harris Rocket Business | Story by Stew Magnuson | #breaking #defense #l3harris @L3HarrisTech
Read now: https://t.co/fXm5BuMWx8 pic.twitter.com/QqAhCx4aPz
— National Defense (@NationalDefense) January 13, 2026
The investment comes with a twist. L3Harris plans to spin off its Missile Solutions unit into a separate public company. An IPO is scheduled for the second half of 2026.
Investors reacted quickly. Shares jumped 11.4% in pre-market trading following the Tuesday announcement. The stock closed at $340.68 the day before.
L3Harris Technologies, Inc., LHX
The Missile Solutions unit makes propulsion systems for critical weapons. Its products power Patriot missiles, THAAD interceptors, Tomahawk cruise missiles, and Standard Missiles.
L3Harris will maintain majority ownership of the new entity. The convertible securities automatically become common equity when the company goes public.
Pentagon Changes Its Playbook
This marks the first direct-to-supplier partnership of its kind. The deal stems from the Defense Department’s new Acquisition Transformation Strategy.
Michael Duffey, Under Secretary of Defense for Acquisition and Sustainment, explained the shift. “We are fundamentally shifting our approach to securing our munitions supply chain,” he said.
The strategy focuses on negotiating directly with critical suppliers. The goal is cutting costs while ensuring steady supply of essential components.
The government has been taking similar positions elsewhere. It grabbed a 10% stake in Intel, which helped double that company’s stock price. It also invested in critical mineral producers.
President Trump recently criticized defense contractors for slow weapons production. This deal arrived just days after those comments.
Conflict Questions Surface
The Pentagon’s ownership stake could spark controversy. The government will own part of a company that bids on federal defense contracts regularly.
Competitors may cry foul over the potential conflict of interest. Commerce Secretary Howard Lutnick hinted at this approach last August when he mentioned possible equity stakes in defense contractors like Lockheed Martin.
Christopher Kubasik, L3Harris Chairman and CEO, framed the move differently. He said recent administration actions emphasize strengthening the defense industrial base after decades of consolidation.
The transaction structure is unusual for the defense sector. It combines government convertible securities with a public offering while the parent keeps control. Regulators and lawmakers may examine the arrangement closely.
The Pentagon said the partnership sets up multi-year procurement agreements for solid rocket motors. Those deals require Congressional authorization and funding.
Last week brought another production boost. The U.S. signed a seven-year agreement with Lockheed Martin to triple PAC-3 missile production from 600 to 2,000 units annually.
The upcoming IPO could generate profits for the government. J.P. Morgan Securities is advising L3Harris on the deal, with Vinson & Elkins providing legal counsel.
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