HP Inc announced that it will repay 16 billion USD to shareholders, mainly through buybacks, and increase costs by trying to unite investors against Xerox Holdings Corp for the control of the world’s second-largest PC maker. HP will increase its share buyback to 15 billion USD, up from its current 5 billion USD announced in October. This will result in adjusted earnings of between 3.25 USD and 3.65 USD per share for fiscal 2022, which is about 1 USD more than analysts forecast.

HP executives also said they were ready to discuss with Xerox a potential combination on their terms, instead of giving in to a hostile effort to engulf the printer manufacturer.

The hardware giant has raised its fiscal 2020 earnings outlook to 2.43 USD per share, at some cost, fueled by the share buybacks planned after the annual shareholder meeting. For the current period, profits will be in the range of 0.49 USD to 0.53 USD per share, the California-based company said in a statement Monday. The forecast is lower than the Wall Street estimate of 0.54 USD.

HP executives said the supply-chain disruptions associated with the coronavirus outbreak would cost the company about 0.08 USD per share in adjusted earnings during the current quarter. HP does not expect the virus, known as COVID-19, to affect performance in the second half of 2020.

The company also said it would increase its cost-cutting program to 1.2 billion USD by 2022. HP, which has 56,000 employees by October, is in the midst of a restructuring that could lead to 9,000 layoffs.

The stocks of HP inc declined by 2.64% yesterday, but since the beginning of the year are up by almost 7%.

HP has repeatedly rejected Xerox’s 35 billion USD acquisition effort, saying the amount “significantly underestimates” the company. The deal would bring together two technology industry icons whose products pioneers of innovation and office employees still use today, but have wallowed in Xerox said it would launch a 24 USD cash and equity offering on or around March 2. For each HP share, the holder will receive 18.40 USD in cash and 0.149 shares of Xerox. Xerox has also begun a proxy battle by nominating 11 candidates for the HP Board of Directors to help close the deal.

“We had a very strong first quarter, we are creating a very aggressive plan and we are confident that we can execute it as before”, said the CEO of HP Inc, Enrique Lores. “We are open to investigating the deal. Each combination must address three questions: it must reflect the correct exchange of value, it must have the right capital structure and it must have the right synergy score”, added he.

HP believes a deal with Xerox would unlock cost savings of just 1 billion USD, not the 2 billion USD promised by Xerox management because only 10% of businesses overlap, said Enrique Lores. HP will use a combination of cash and debt to fund the redemption. Chief Financial Officer Steve Fieler said he expects the company to repay several billion dollars in debt. The manufacturer undertakes to maintain a debt ratio in the range of 1.5 to 2 times the profit, compared to a ratio that is currently 1.1 times the profit.

Xerox’s biggest investor, activist Carl Icahn, has been pushing for any form of connection as long as Xerox CEO John Visentin runs the combined company.

HP structures share buyback as an incentive for investors to reject Xerox directors. If shareholders vote against newcomers, they will begin to see an 8 billion USD buy-in benefit next year, HP claims. The company said it will issue an opinion next week on the date of its annual meeting, which is usually April.

Fiscal profit for the first quarter amounts to 65 cents per share, at some cost. Thus, it surpassed HP’s previous estimate of 56 cents a quarter. Analysts expected a profit of 0.54 USD.

For years, HP has been striving to stabilize its winning print division, which began stumbling in February 2019 due to lower customer demand for inks and toners. Revenue fell by less than 1% to 14.6 billion USD during the January 31 period. Sales in the print department fell 7% to 4.7 billion USD, with revenue from ink shipments down 7% from January 31st. And for consumer devices, the reduction is 1%.

In response to declining ink sales, HP plans to change its business model, starting later this year, to make some printers profitable in advance, rather than depreciating them significantly and offset the difference in ink sales. The company’s inexpensive printers will now be incompatible with shared or fake ink cartridges.

HP is a leader in the printing industry, with a 20.6% market share in revenue, according to research firm Gartner Inc. Xerox is in fourth place with a 10% share.

PC revenue grew 2.4% to 9.9 billion USD in the quarter, despite interruptions from the coronavirus. There has been an increase in the sales of laptops, desktops, and workstations. Corporate clients upgrade their computers to adopt Microsoft Corp’s Windows 10 operating system.