Costa Coffee will be spun off as an independent business after owner Whitbread  yielded to pressure from hedge fund investors who saw value in breaking up a group that also runs the Premier Inn hotel chain.

Costa Coffee, second in the global coffee shop market after Starbucks Corp, had attractive long-term international opportunities, Whitbread said.

The move will leave former brewing group Whitbread with its Premier Inn hotels and Beefeater and Brewers Fayre restaurants once the split is completed within 24 months.

Investors, lead by activists Paul Singer's Elliott and U.S.-based Sachem Head, have been pressuring the British company to split itself up to help unlock value.

"We are confident that both Premier Inn and Costa will soon be businesses of sufficient strength, scale and capability to enable them to thrive as independent companies," Chief Executive Alison Brittain said.

Shares in the group, founded as a brewer in London more than 200 years ago, reversed early gains to trade down 2 per cent at £41.01 at 0910 GMT. That values the company at around £7.6 billion.

They had been at one-year highs in recent days after reports said Britain believed a spin-off was inevitable.

Morgan Stanley, which rates Whitbread "equal-weight", said the demerger could trigger takeover interest in Costa.

Ed Meier, a manager of the Old Mutual UK Equity Income Fund, which is a Whitbread investor, welcomed the move.

"As long term shareholders in Whitbread we feel this is the right decision to maximise shareholder value over the medium term, though we sense allowing 24 months for the process is longer than most would have anticipated," he said.

Brittain said the split would be pursued as fast as practical to optimise value for Whitbread's shareholders.