Defense Business Brief: Defense firms could have to pay millions under proposed buyback tax; M&A heats up; Vax mandate delayed; and more.
The U.S. House is expected to vote Friday on President Biden’s $1.75 trillion social safety net spending bill and a separate bipartisan $1 trillion infrastructure package. While there isn’t Pentagon money in these measures, they could still impact defense companies. The so-called Build Back Better framework calls for a tax on stock repurchases, also called buybacks.
Build Back Better would require a 1 percent tax on share repurchases. “The framework also includes a 1% surcharge on corporate stock buybacks, which corporate executives too often use to enrich themselves rather than investing workers and growing their businesses,” according to a White House fact sheet.
So far this year, five of the top six U.S. defense companies—Lockheed Martin, Raytheon Technologies, Northrop Grumman, General Dynamics, and L3Harris Technologies—have repurchased about $11.1 billion of their own shares, according to recent SEC filing. That means collectively, these companies would have to pay a total of $111 million, roughly the cost of one F-35B Joint Strike Fighter. So far, there’s no signal that buybacks will slow.
“With our stock trading at a level well below what we calculate is the company's intrinsic value, we have significantly increased our planned share buybacks, and I anticipate that we will repurchase up to $6 billion of our shares over the next 12 [to] 18 months if conditions warrant,” Lockheed Martin CEO Jim Taiclet said on the company’s third quarter earnings call last week.
Speaking of Lockheed, Bank of America analyst Ron Epstein downgraded its stock to neutral after executives said they expected company revenue to fall next year.
The Biden administration said it would delay the federal contractor vaccine mandate from Dec. 8 until Jan. 4, 2022. That gives companies more time to get workers vaccinated and prevents mass layoffs before the December holiday season. What it doesn’t do is provide options, like mandatory COVID testing, for workers who refuse to get vaccinated.
There’s been a flurry of M&A announcements. ManTech said it would acquire Gryphon Technologies from AE Industrial Partners for $350 million. “The acquisition adds over 1,500 highly skilled employees to the ManTech team and will expand ManTech’s DoD footprint and suite of capability offerings with signature digital engineering solutions,” the company said in a statement.
Private equity firm AE Industrial Partners also “made a significant equity and debt investment in Fire Team Solutions, a leading provider of mission-critical technology services to the U.S. intelligence community.” The transaction’s terms were not disclosed.
Government services contractor Amentum entered an agreement to acquire PAE for $1.9 billion. “The acquisition of PAE complements Amentum’s growth into intelligence and technology services, deepens its relationship with key agencies such as the Department of State, NASA, and the Intelligence Community, and meaningfully adds to Amentum’s scale, depth of client relationships and breadth of capabilities,” Amentum CEO John Vollmer said in a statement.
Weekend reading: Two new reports from the Center for Strategic and International Studies. The first, from Todd Harrison, is about the future of battle networks and Joint All-Domain Command and Control, better known as JADC2. “This paper examines the operational advantages and adversary threats driving the requirements for greater interoperability and resilience in battle networks,” it states. The second: A history and assessment of the Defense Department’s budget execution process from former Pentagon Comptroller Bob Hale.
President Biden has nominated Adm. Christopher Grady, the commander of U.S. Fleet Forces Command, to be the Joint Chiefs vice chairman.
Teledyne FLIR named Anne Bulik vice president of the company’s unmanned aerial systems business.
From Defense One
Biden Administration Delays Contractor Vaccine Mandate Until Jan. 4 // Marcus Weisgerber
Defense firms had warned of layoffs and weapons-manufacturing delays.
Lockheed Martin and Verizon to Partner to Develop 5G Tech for the Military // Marcus Weisgerber
The companies recently connected a military communications network to a commercial 5G network.
China Likely to Have 'At Least' 1,000 Nukes by 2030, Pentagon Estimates // Tara Copp
Beijing's new capabilities could embolden a Taiwan attack—but that's not likely within the next two years, Milley says.
Navy Secretary Seeks 3-5% Annual Budget Increases // Caitlin M. Kenney
"I think more members of Congress understand the real threat that China presents," Del Toro said.
The Defense Policy Bill Is Late Again. This Year, the GOP Is Blaming Democrats // Jacqueline Feldscher
Four of the past 10 NDAAs passed the Senate in November or December.
New Tech Will Erode Nuclear Deterrence. The US Must Adapt // Barry Pavel and Christian Trotti
A nuclear-only review can't properly assess sensors and weapons from hypersonics to directed energy.
Quantum Sensor Breakthrough Paves Way For GPS-Free Navigation // Patrick Tucker
The main problem wasn't weird subatomic physics. It was finding a simpler way to maintain a vacuum.
New White House Cyber Director Wants to Fight Like Cobra Kai // Patrick Tucker
Chris Inglis says the government needs to hit would-be attackers where it hurts.