S. 4734: Critical Defense Ownership Review Act

This bill would create a new Department of Defense review process for certain mergers, acquisitions, joint ventures, strategic alliances, and investments involving major defense suppliers.

What would change

If an investment company wants to buy or otherwise gain a significant stake in a major defense supplier, it generally could not do so without prior review by the Department of Defense (DoD) if the deal would result in:

• at least a 25% direct or indirect equity interest, or
• direct or indirect control of the defense supplier.

The bill defines “control” broadly as the power to determine or direct important matters affecting a company.

Notification and review process

Parties to a covered transaction would have to file a premerger notice with DoD. The department would then review the deal and assess, at a minimum:

• effects on national security and the defense industrial and technology base;
• whether the deal is in the public interest;
• effects on competition for defense contracts and future defense programs;
• whether a critical supplier, good, or service could be restricted;
• possible risks to the financial stability of the defense supplier and to the stewardship of critical military capabilities, including possible higher costs to DoD;
• other risks that could interfere with DoD programs or operations; and
• the financial stability of the investing company and whether its plan for the defense supplier could harm that supplier’s ability to keep providing goods or services to DoD.

Within 30 days after receiving the notice, the Secretary of Defense would have to send a written report to the Federal Trade Commission or the Justice Department’s Antitrust Division, depending on which agency is handling the matter.

Ongoing reviews of defense-industry mergers

The bill would also require the Pentagon’s Industrial Base Policy office to review merger and acquisition activity involving major defense suppliers every three years. That review would look at:

• the financial health of those companies after mergers or acquisitions;
• whether deals have affected the supply of essential goods or services needed for defense missions; and
• what actions, if any, were taken to address identified risks.

A report on those findings would be due to congressional defense committees by December 31, 2027, and every three years after that.

Who counts as a major defense supplier

The bill covers prime contractors and subcontractors that supply, or could supply, goods or services to the Department of Defense, as well as companies with technology that could be important to defense capabilities. It specifically includes current prime contractors for major defense systems and certain other DoD contract holders.

Relevant Companies

• LMT - Lockheed Martin, a major defense prime contractor that could be affected by ownership reviews of large investments or acquisitions involving its business.
• RTX - RTX (Raytheon), a major defense supplier whose mergers, acquisitions, or ownership changes could be subject to the bill’s review process.
• NOC - Northrop Grumman, a major defense contractor that could be impacted by additional review of transactions involving its suppliers or investors.
• GD - General Dynamics, a defense contractor that could be affected if investment firms seek controlling stakes in related defense businesses.
• BA - Boeing, including its defense operations, could be affected by the bill if covered transactions involve its defense-related business units or suppliers.
• LHX - L3Harris Technologies, a defense supplier that could face more scrutiny in ownership or merger transactions involving investment companies.
• HII - Huntington Ingalls Industries, a defense shipbuilder that could be affected by the bill’s review requirements for significant ownership changes.