Altria's announcement Wednesday has been widely anticipated by Wall Street as the first step in a restructuring plan designed to increase shareholder value.
Kraft Foods, the second-largest food and beverage company in the world, sells products such as Kraft cheese, Ritz crackers, Maxwell House coffee and Toblerone chocolates.
The distribution of about 89 percent of Kraft's shares to Altria's shareholders will be made on March 30 to shareholders of record as of March 16, Altria said in a statement.
It will distribute about 0.7 of a share of Kraft for every one share of Altria. Fractional amounts will be paid in cash. The exact ratio will be determined on the record date.
Kraft, based in Northfield, Ill., has been trading on its own since a 2001 public offering that left Altria with a majority stake in the business.
Analysts and investors have eagerly awaited the restructuring since plans for it were outlined in November 2004.
Altria has grown more comfortable with its tobacco litigation risk and Kraft's readiness to stand alone, which allowed them to proceed.
"I am extremely pleased to announce the spin-off of Kraft today, a major step in our commitment, announced more than two years ago, to deliver superior shareholder value," Chief Executive Louis Camilleri said in a statement.
Kraft subsequently announced that Camilleri will step down as chairman of its board of directors March 30 and will be replaced by Kraft CEO Irene Rosenfeld. Camilleri will continue to serve on the board.
Next, analysts expect the New York-based company could split its domestic and international tobacco divisions later this year.
Philip Morris USA is the biggest cigarette maker in the nation and holds nearly half of the total market, selling the Marlboro, Virginia Slims, Parliament and Basic brands.