Whitbread will spin off Costa Coffee after activist investors pushed for Britain's biggest coffee chain to be listed as a separate business.
It said Costa Coffee, second in the global coffee shop market after Starbucks Corp <SBUX.O>, had attractive long-term international opportunities.
The move leaves Whitbread with its Premier Inn hotels operation and the split is expected to be completed within 24 months.
Investors, lead by activists Paul Singer's Elliott and U.S.-based Sachem Head, have been pressuring the British company to split itself up to help unlock value.
"Given the progress Whitbread is making, we are confident that both Premier Inn and Costa will soon be businesses of sufficient strength, scale and capability to enable them to thrive as independent companies," Chief Executive Alison Brittain said.
She said the split would be pursued as fast as practical to optimize value for Whitbread's shareholders.
Elliott Advisors - part of U.S. investor Paul Singer's hedge fund firm which disclosed a 6 percent stake in the company - had estimated the separate businesses to have a total market capitalisation of 10 billion pounds, up from around 7.7 billion pounds now.
Brittain, however, the timing of the decision was not influenced by shareholder pressure.
She said it was important that both businesses had strong international growth prospects before they separated, and large acquisitions for both in the last year had achieved that aim.
The announcement came after Whitbread reported growth in full-year revenue of 6.1 percent to 3.3 million pounds and a 4.5 percent rise in underlying profit before tax to 591 million pounds, beating a company-compiled forecast of 585 million pounds.