L3Harris Technologies (LHX) Stock Surges 11% on $1 Billion Pentagon Deal

TLDR

• Pentagon investing $1 billion in L3Harris Technologies’ rocket motor business through convertible securities
• L3Harris will spin off its Missile Solutions unit into a new public company with IPO planned for second half 2026
• Government’s investment represents first direct-to-supplier partnership under Pentagon’s new acquisition strategy
• LHX shares jumped 11.4% in pre-market trading following the announcement
• Deal raises potential conflict of interest concerns as Pentagon will own stake in contractor bidding on government contracts

The Pentagon is putting $1 billion into L3Harris Technologies’ rocket motor business. The investment comes through convertible securities that will turn into common equity when the new company goes public later this year.

L3Harris will spin off its Missile Solutions unit into a separate publicly traded company. The parent company will keep majority ownership and control. The unit produces propulsion systems for Patriot, THAAD, Tomahawk, and Standard Missile systems.

Shares of L3Harris rose 11.4% in pre-market trading on Tuesday. The stock closed at $340.68 on Monday before the announcement.

L3Harris Technologies, Inc., LHX

The deal marks the Pentagon’s first direct-to-supplier partnership. It comes from the Defense Department’s new Acquisition Transformation Strategy and “Go Direct-to-Supplier” initiative. The approach aims to save money by negotiating directly with critical suppliers.

“We are fundamentally shifting our approach to securing our munitions supply chain,” said Michael Duffey, Under Secretary of Defense for Acquisition and Sustainment. The investment should guarantee steady supply of rocket motors used in Tomahawk cruise missiles and Patriot interceptors.

The government has been making similar moves in other sectors. It took a 10% stake in Intel, which helped double that company’s share price. It also invested in critical mineral producers.

President Donald Trump criticized defense contractors last week for slow weapons production. The L3Harris deal comes days after that criticism.

Government Ownership Creates Questions

The Pentagon’s equity position in L3Harris could draw criticism from competitors. The government will own part of a company that regularly bids on defense contracts. This creates a potential conflict of interest situation.

Commerce Secretary Howard Lutnick said last August the Trump administration was considering equity stakes in major defense contractors. Lockheed Martin was mentioned as a possibility.

Christopher Kubasik, L3Harris Chairman and CEO, said recent Trump administration actions emphasize strengthening the defense industrial base. He called the new company a key partner to the Pentagon.

Production Ramp-Up Plans

The Pentagon said the partnership positions it to negotiate multi-year procurement agreements for solid rocket motors. These agreements depend on Congressional authorization and appropriations.

Last week, the U.S. signed a seven-year deal with Lockheed Martin. That agreement increases PAC-3 missile production to 2,000 units per year from about 600.

The transaction structure combines a government convertible preferred security with a planned public offering. L3Harris maintains parent company control throughout. This structure is rare in the defense sector.

Regulators and lawmakers may scrutinize the deal. Concerns about conflicts of interest and market competition could arise.

The IPO is scheduled for the second half of 2026. The public offering could allow the U.S. government to turn a profit on its investment.

J.P. Morgan Securities is serving as financial advisor to L3Harris. Vinson & Elkins is the legal advisor on the transaction.