The decision means holders of Peabody stock will receive one share of Patriot Coal Corporation for every 10 shares of Peabody owned that will be traded on the New York Stock Exchange.
Peabody chairman and CEO Gregory Boyce said the decision came after a review of Peabody's assets and operations and will return maximum benefits to shareholders.
"We believe this spin-off unlocks long-term value for shareholders, who will retain ownership in the world's largest coal company and obtain ownership in a leading Eastern US producer with a major metallurgical and steam coal position," Boyce said.
"With this spin-off, both companies are able to pursue their distinct growth plans and business focus.
"Peabody continues the planned transformation of our earnings base as we expand our global operating platform, increase our presence in the Western United States and Illinois Basin, accelerate our worldwide trading activities and participate in Btu conversion."
Two existing Peabody board members - Irl Engelhardt and Bobby Brown - will move to Patriot, joining former vice-chairman of Emerson Electric J Joe Adorjan; former Consol Energy chairman and CEO Bobby Brown; former chief financial officer of Hanson Industries and Millennium Chemicals John Lushefski; senior vice-president and CFO of Bunge North America Michael Scharf; and former CEO and director of CILCORP Robert Viets.
