Xerox said the separation will create an $11 billion document technology company with 40,000 employees, and $7 billion Business Process Outsourcing (BPO) company.
Xerox and the new BPO company will also initiate a three-year restructuring plan in an aim to produce $700 million in annual savings in 2016 and save $2.4 billion across all segments.
"Today Xerox is taking further affirmative steps to drive shareholder value by announcing it will separate into two strong, independent, publicly traded companies," said Xerox chairman and CEO Ursula Burns, in a statement. "These two companies will be well positioned to lead in their respective rapidly evolving markets and capitalize on the opportunities that now exist to expand margins and increase market share."
The spinoff is in part the result of pressure from billionaire investor Carl Icahn. Icahn acquired 8.13 percent stake in Xerox at the end of last year, positing that the shares were grossly undervalued.
As part of the spinoff deal, Icahn has bartered himself the ability to select three board members for the BPO business. The activist investor will also select someone to "observe and advise" the search committee for the next chief executive of the new company.
The spinoff puts Xerox alongside a bevy of other legacy corporations that have succumbed to pressure to split up or pare their operations. Icahn notoriously led the charge to break eBay and PayPal into two companies. That split came to fruition last July.
Xerox held a strategic review of its business portfolio last October, and at the time Burns favored keeping the company together. But Xerox has seen revenue decline for multiple quarters, likely making the pressure from investors and the company's sinking bottom line too much to bare.
Xerox also reported fourth quarter earnings and revenue Friday. The company had a Q4 net income of $285 million, or 27 cents a share, up 43 percent and 59 percent from a year earlier. Revenue was $4.7 billion, down eight percent from a year ago.