Pentagon to invest $1 billion in L3Harris rocket motor business, shares surge
The U.S. Department of Defense will invest $1 billion directly into L3Harris Technologies' rocket motor business, a move designed to secure the critical munitions supply chain and culminating in the spin-off of the unit into a new publicly traded company.
Under the agreement announced Tuesday, the government's investment will take the form of a convertible security, which will automatically convert to common equity when the newly independent company completes an initial public offering (IPO), planned for the second half of 2026. L3Harris will retain majority ownership and control of the new entity, which will produce solid rocket motors for a wide array of missiles including the Patriot, THAAD, Tomahawk, and Standard Missile systems.
Shares of L3Harris surged 11.4% in pre-market trading following the news. The deal represents a strategic shift for the Pentagon, aligning with its newly unveiled "Go Direct-to-Supplier" initiative aimed at building a more resilient industrial base.
"We are fundamentally shifting our approach to securing our munitions supply chain," said Michael Duffey, Under Secretary of Defense for Acquisition and Sustainment. "By investing directly in suppliers we are building the resilient industrial base needed for the Arsenal of Freedom."
The investment marks the first partnership of its kind under this strategy and follows recent administration criticism of defense contractors for slow weapons production. It also continues a trend of direct government investment in key industries, following a stake in chipmaker Intel and funding for critical mineral producers.
"This new company will serve as a key partner to the Pentagon," said L3Harris Chairman and CEO Christopher Kubasik, citing the Trump Administration's emphasis on strengthening the defense industrial base.
While the deal guarantees a steady flow of business for the new rocket motor supplier, its unusual structure—a government-owned equity stake in a major defense contractor—may face scrutiny. Critics could point to potential conflicts of interest, as the Pentagon will hold a financial interest in a company that regularly competes for government contracts.
The Pentagon stated the partnership positions it to negotiate multi-year procurement agreements for solid rocket motors, pending congressional approval. The announcement comes shortly after the U.S. signed a separate seven-year pact with Lockheed Martin to dramatically increase production of PAC-3 missiles.
J.P. Morgan Securities is acting as financial advisor to L3Harris on the proposed transaction.
