- L3Harris will spin off its Missile Solutions unit in an H2 2026 IPO, with the DoD investing $1B via convertible preferred equity that becomes common at listing.
- The new company will focus on solid rocket motors for major missile programs (Patriot PAC-3, THAAD, Tomahawk, Standard Missile), while L3Harris keeps majority control.
- Analysts see the move as a valuation-unlocking deconsolidation that could prompt similar spin-offs at Lockheed Martin, RTX, General Dynamics, and Northrop Grumman.
- The deal pioneers a DoD “direct-to-supplier” investment model without governance control, but adds execution, demand, and political/regulatory risks.
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The deal between L3Harris and the Department of Defense (DoD) represents a structural shift in how the U.S. defense industry is compensating for years of constrained capacity, especially in missile motor production. Under the arrangement announced in mid-January 2026, the DoD will invest US$1 billion in L3Harris’ Missile Solutions business via convertible preferred securities, which will convert to common stock upon the IPO later in 2026; L3Harris will retain majority ownership and control.
Missile Solutions (including the Aerojet Rocketdyne operations acquired by L3Harris in 2023) currently generates between US$3.6–3.8 billion in revenue and employs about 7,000 people. It will manufacture solid rocket motors for key programs including PAC-3 (Patriot), THAAD, Tomahawk, and the Standard Missile series. These systems are central to U.S. air and missile defense.
On the valuation front, analysts have noted that missile-focused businesses usually command higher EV/EBITDA multiples (15-31×) compared to diversified defense contractors (~13×), implying meaningful shareholder value can be unlocked through deconsolidation. For example, Lockheed Martin’s missile and fire control segment has been flagged as one possible candidate for spin-off due to its growth profile.
The DoD’s participation via convertible preferred equity—with no board seats or management control—shows a focus on economic leverage without direct control, reducing governance concerns but still raising potential conflict-of-interest or competitive neutrality issues given the government’s role as both investor and primary customer. The Pentagon’s newly outlined Acquisition Transformation Strategy and “Go Direct-to-Supplier” initiative are structural enablers of this model.
Risks remain: execution risk for the IPO and spin-off, scalability of solid rocket motor demand beyond current conflict levels, potential funding or regulatory hurdles especially around government ownership and procurement competition, and the possibility that other defense primes may struggle with disentangling integrated business units.
Strategic implications are broad. First, the defense industrial base may shift toward smaller, more agile pure-plays enjoying focused demand signals and better growth visibility. Second, competition dynamics may change, as new standalone entities can more directly compete for contracts. Third, valuation of diversified primes may increasingly be penalized if perceived to carry low-growth, non-core divisions consensus says.
Open questions include: How Congress will respond to DoD investing in a private defense supplier; how other primes will respond; whether demand for missile motors remains strong enough to sustain multiple pure-play competitors; and whether investors will support the governance structure around government equity without control.
Supporting Notes
- The U.S. Department of Defense will invest US$1 billion in L3Harris’ solid rocket motor division via a convertible preferred security that converts into common equity post-IPO in H2 2026.
- L3Harris will spin off its Missile Solutions business as a standalone, publicly traded company, focused on propulsion systems for Patriot, THAAD, Tomahawk, Standard Missile; parent company retains controlling interest.
- Missile Solutions business reported ~US$3.6-3.8 billion in revenue in 2025, employing ~7,000 people.
- Analyst estimates: missile-focused businesses trade around 15-31× EBITDA vs ~13× for large, diversified defense contractors.
- Candidates for similar spin-offs include Lockheed Martin’s Missile & Fire Control business, RTX’s combined defense business, Gulfstream unit of General Dynamics, and potentially rocket propulsion units in Northrop Grumman; though the latter may be harder due to integration.
- New initiative tied to DoD’s Acquisition Transformation Strategy / Go Direct-to-Supplier initiative; government’s role limited to economic investment without board seats or day-to-day oversight.
- Market reaction: L3Harris stock rose significantly (≈11-12 %) on news; its stock has appreciated ≈60 % over past twelve months.