Computer Sciences Cop said it would split into two public companies - one to serve commercial and government clients globally and one to serve public sector clients in the United States.
CSC shares were up 4.5 percent in after-market trading on Tuesday.
Reuters exclusively reported last week that the company was planning to separate its government business from its commercial information technology division.
CSC, which has made multiple attempts to sell itself over the years, is in the midst of a cost-cutting campaign amid sequestration and budget pressures from the US government.
Following the separation, expected to be completed by October-end, CSC shareholders will own shares of both companies, CSC said on Tuesday.
The company said the split into two companies would be tax-free for its shareholders. It also declared a special cash dividend of US$10.50 per share as part of the deal.
Hedge fund Jana Partners LLC, which disclosed a 5.9 percent stake in CSC in February, said it supported the move.
CSC's global commercial business posted revenue of US$8.1 billion for the year ended 3 April, while the US public sector business recorded US$4.1 billion in revenue in the same period, the company said.
Fourth-quarter revenue fell 12.6 percent to US$2.91 billion, hurt by lowered prices, restructuring and contract completions. Costs rose 11.4 percent to US$3.23 billion.
The company estimated an adjusted profit of 4.75-$5.05 per share from continuing operations for the full year.
Analysts on average were expecting a profit of US$4.80 per share, according to Thomson Reuters I/B/E/S.
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