The Pentagon’s DOW, otherwise known as the Defense Department, didn't buy L3Harris Technologies Inc (NYSE:LHX) common stock. It bought something far more useful: leverage over how fast missiles get built.
Instead of buying common stock, the Pentagon backed a new, independently traded missile solutions business with a $1 billion convertible preferred investment. That choice wasn't cosmetic. It was the strategy.
This Wasn't An Equity Bet — It Was A Control Bet
Buying common stock would've tied the government to market swings and shareholder optics. Preferred stock does the opposite. It sits above common equity, offers downside protection, and still keeps upside optionality through conversion. In plain English: Washington structured the deal to win if things go right and lose less if they don't.
That's not politics. That's portfolio construction.
Why Spin Out The Missile Business
Missiles are no longer a side segment of defense spending. They're the bottleneck. Conflicts in Ukraine and the Middle East exposed a simple problem: demand surged, supply couldn't keep up.
By creating a standalone missile unit, the Pentagon gets faster production, cleaner contracts, and fewer corporate layers slowing execution.
This is about output, not optics.
Preferred Stock Solves A Bigger Problem
Defense procurement is notoriously slow. Traditional contracts don't scale capacity quickly, and outright nationalization isn't realistic.
Convertible preferred sits in the middle. It injects capital immediately, aligns incentives, and avoids overpaying upfront for equity that may take years to prove itself.
In effect, the Pentagon acted less like a regulator — and more like a disciplined capital allocator.
Investor Takeaway
This wasn't a vote on L3Harris' past performance. It was a funding decision for future missile capacity. When the government starts structuring deals like a hedge fund — protecting downside while reserving upside — it's signaling urgency.
For investors, the message is clear: missiles aren't just another defense line item anymore. They're strategic infrastructure, and L3Harris just moved closer to the center of it.
Photo: Shutterstock
