HP (HPQ) fired the bazooka at agitator, would-be acquirer Xerox (XRX) on Monday afternoon.

While HP’s fiscal first quarter earnings beat of 11 cents a share (adjusted earnings per share of 65 cents versus analyst estimates of 54 cents) is noteworthy in and of itself, the company’s new capital allocation plan and strong wording to executives at Xerox that are the showstopper. The printer and notebook maker revealed a new $16 billion capital allocation program spanning fiscal year 2020 to fiscal year 2022. Under the plan, HP increased its stock buyback authorization to $15 billion from $5 billion.

In addition, HP offered this to Xerox’s management team:

“HP believes there is merit in industry consolidation which is why it acquired Samsung Printing in 2017. However, consolidation must benefit HP shareholders. The revised Xerox proposal, announced on February 10, 2020, meaningfully undervalues HP, creates significant risk, and compromises HP’s future.

Here’s the revised Xerox proposal:

• Exchanges HP stock for cash and Xerox stock at a fundamentally flawed value exchange that does not compensate HP shareholders for the value of HP executing on its strategic plan and transfers value from HP shareholders to Xerox shareholders;

• Uses HP’s balance sheet as transaction consideration and creates an irresponsible capital structure that would jeopardize the future value of the combined company and constrain its ability to invest in growth and innovation; and

• Overstates the potential synergies by including HP’s existing plans for independent cost reductions and productivity gains. HP is reaching out to Xerox to explore if there is a combination that creates value for HP shareholders that is additive to HP’s strategic and financial plan. HP’s Board of Directors is committed to pursuing the most value-creating path and to serving HP shareholders’ best interests.”

HP’s comment that it has “reached out” to Xerox is a new wrinkle to the merger battle that erupted last fall. HP CEO Enrique Lores downplayed the need for HP to team up with Xerox when asked by Yahoo Finance if its rival is a true strategic asset. Lores stressed HP’s superior technology.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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