The firm said that for each current share, existing shareholders would receive one share in a separately listed news distribution business called Smiths News and another in a retail business with the WH Smith name.
The proposal, which was first signalled by the company in April, will be put before shareholders in early August with the demerger expected to become effective on August 31.
WH Smith Retail operates 543 high street and 128 travel location stores, while Smiths News provides newspapers and magazines to an estimated 22,000 retailers in England and Wales every day.
Smiths declined to comment on speculation the demerger might encourage bids for either of the two businesses, and said the split was entirely for commercial reasons.
Kate Swann and Alan Stewart will be chief executive and finance director respectively of the new retail business, which will increase focus on its successful travel retail division selling books and magazines in airports and rail stations.
"Travel hasn't had as much focus as perhaps it should have," said Ms Swann. "It's delivered extremely good results now for the last three years and we foresee that continuing."
Analysts at Numis Securities said: "WH Smith Retail, having been a basket case for many years, is now being run as an efficient and modern retailer.
"While sales are still in negative territory, there is still more to come on margins and costs and we expect profit
before tax to grow by 12 per cent this year and ten per cent in 2006/07."
Mark Cashmore will be chief executive and Alan Humphrey finance director of the new Smiths News distribution business, which distributes newspapers and magazines to 22,000 shops in England and Wales each day.
"As a separate company, we will be even more responsive to publishers' needs," Mr Cash-more said.
"In addition, without the link to WH Smith retail, we believe we'll be able to work more effectively with other retailers who previously viewed the business as part of a competitor group."
Smiths News shares will start trading on August 30, and shares in the new WH Smith will launch the following day. As part of the demerger, WH Smith has agreed to pay an additional £50 million into its pension fund, to be funded from £70 million of new borrowings in Smith News.
While it remains cautious about the outlook for consumer spending, WH Smith said it was confident in the outcome for the financial year, which finishes at the end of August.
"Overall, the board continues to be cautious about the outlook for consumer spending," the group said in a statement.
"Nevertheless, current trading is in line with management expectations and the board remains confident in the outcome for the full year."
Shares closed up 5.75p at 472p. ..SUPL: