Whitbread will spin off Costa Coffee after activist investors pushed for the coffee chain to be listed as a separate business.
It said Costa Coffee, second in the global coffee shop market after Starbucks, 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 US-based Sachem Head, have been pressuring the UK 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 optimise value for Whitbread's shareholders.
Elliott Advisors - part of U.S. investor Paul Singer's hedge fund firm which disclosed a 6% stake in the company - had estimated the separate businesses to have a total market capitalisation of £10 billion, up from around £7.7 billion 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% to £3.3m and a 4.5% rise in underlying profit before tax to £591m.
This was better than a company-compiled forecast of £585m.