Xerox said it would split into two companies, one holding its legacy hardware operations and the other its business process outsourcing unit, in which activist investor Carl Icahn will get three board seats.
Icahn, who first revealed a stake in Xerox in November, had said he would seek representation on the company's board as well as pursue strategic alternatives. He later raised his stake to 8.13 percent.
Xerox shares rose 1.8 percent to $9.40 in premarket trading on Friday.
Xerox Chief Executive Ursula Burns told CNBC that Icahn had nothing to do with the initiation of the split.
The company, whose shares had fallen more than 30 percent in the past 12 months, has been trying to turn itself around by focusing on software and services as businesses cut costs and a switch to mobile devices hits demand for printers.
Larger rival Hewlett Packard Enterprise Co also split its computer and printer businesses from its faster-growing corporate hardware and services operations last year to adjust to the post-PC computing era.
Icahn has had considerable success with getting companies to spin off their fast-growing businesses.
Under pressure from the billionaire, eBay Inc split its payments business Paypal Holdings Inc, while Manitowoc Co Inc separated its crane manufacturing business from its food service business.
Burns, who took the helm in 2009, said on Friday her role was yet to be determined.
Under Burns' leadership, Xerox took a leap into the services market in 2010 with its $6.4 billion acquisition of Affiliated Computer Services Inc.
Xerox, which came into prominence with the launch of the 914 photo copier in 1959, said the leadership and names of the new companies were yet to be decided.
The company said the document technology company, which will make printers and copiers, would have annual revenue of $11 billion, while the business process outsourcing company would have $7 billion in revenue.
The split, expected to be complete by the end of 2016, will deliver $2.4 billion in savings over next three years across both companies.
Xerox also posted fourth-quarter results, with profit rising 42.5 percent and costs and expenses falling 7.3 percent.
Lazard and Goldman Sachs are advising Xerox.
(Reporting by Kshitiz Goliya and Supantha Mukherjee in Bengaluru; Editing by Saumyadeb Chakrabarty)