The split would focus Ingersoll-Rand on heating, ventilation and air conditioning products, separating its commercial and residential security operations into a new publicly traded entity in the form of a tax-free spinoff.

Ingersoll-Rand, which is incorporated in Swords, Ireland, and has its U.S. executive headquarters in Davidson, N.C., said the move would create two focused entities better able to compete in their core markets.

"Given the distinct strengths and strategies of the two proposed companies, the board believes that this structure will enable investors to value our different businesses separately, creating value for both companies and their shareholders," Ingersoll-Rand chairman and CEO Michael W. Lamach said in a statement. "We believe the spinoff, which is the result of an in-depth review of strategic alternatives by our board and management, will allow both companies to enhance value by allocating capital and deploying resources in a more focused way, while preserving and increasing synergies within their businesses."

The split would also allow the new security company to pursue consolidation, Lamach said, saying the standalone would be able to "build scale and make the necessary investments for the future."

Post-split, Lamach would continue as chairman and chief executive of Ingersoll-Rand, which would house the HVAC business and brands including Trane, American Standard, Thermo King and Club Car, as well as other industrial units.

The Ingersoll-Rand businesses had about $12 billion in 2011 revenue, while the assets that will make up the security company generated 2011 sales of about $2 billion.

The split is Ingersoll-Rand's first major strategic move since naming Peltz to its board in August. The investor's Trian Fund Management LP in May disclosed a 7.33% stake in Ingersoll-Rand and said it would push for a breakup of the manufacturing conglomerate.

Ingersoll-Rand said that in addition to the split the company intends to repurchase upward of $2 billion worth of shares beginning in 2013 and would increase its dividend to 21 cents per share payable in March, up from a 16 cents per share payout scheduled for December.

Lamach said the company "generated substantial free cash flow, even through tough economic times" and said "our outlook has not changed in this regard."

A JPMorgan Chase & Co. team including Chris Gallea, Chris Ventresca, Dan Grabos, Scott Jackson and Mark Mikullitz is advising Ingersoll-Rand on the split. Simpson Thacher & Bartlett LLP's Mario Ponce, Peter Martelli and Josh Bonnie advised Ingersoll-Rand on the spinoff.