By Bob Tita

Of DOW JONES NEWSWIRES

ITT Corp. (ITT) said it plans to split into three publicly traded companies focused on water management,

aerospace and defense, and industrial products.

The move is intended to decouple the diversified industrial conglomerate's commercial businesses from

its defense segment, which faces headwinds in the coming years from lower U.S. spending on military

programs. Although defense provided a crucial offset for ITT's struggling industrial business lines during

the economic recession, investors and analysts increasingly view the defense unit as a drag on the rest of

the company's performance as economic conditions improve.

"Today marks a new day for ITT," said Chairman and Chief Executive Steve Loranger during a

conference call with analysts Wednesday. "All three companies will be better aligned with their respective

customers bases." Loranger said the White Plains, N.Y., company has been working on alternatives to its

current structure for about six months. He said the company concluded that it had three distinct business

operations whose value would be realized best under a tax-free spinoff into three new companies. ITT

investors will receive shares for each of the new companies.

ITT's stock was recently up 15.3% at $60.87 as share.

ITT will continue as an industrial products company that will primarily be made up of the company's

motion and flow control unit, which supplies components and industrial process technologies to the

automotive, aerospace, rail, energy and beverage industries. ITT sees this company generating $2.1

billion in revenue in 2011. Denise Ramos, the company's chief financial officer, will become the industrial

company's CEO. Frank MacInnis, an ITT director, will serve as the company's chairman.

Meanwhile, the water business, which has been expanding recently from a series of acquisitions, is

expected to have annual revenue of $3.6 billion a year. The company will be focused on the testing and

treatment or water and waste water from municipalities and industrial companies. Gretchen McClain, who

is currently president of the ITT's fluid and motion control unit, will be the chief executive of the new water

company. Loranger will serve as its executive chairman.

ITT's water and industrial businesses saw significant reductions in revenue and income during the

recession. The company launched a prolonged restructuring of the units that is expected to yield

improved profits in the coming years. ITT expects the units' organic revenue, which doesn't include

revenue from acquisitions, to grow by about 5% this year over 2010, with a 22% to 25% increase in

operating income.

"We realigned these businesses," Ramos said. "Now that we're getting top line growth, we'll get margin

improvement."

ITT's defense and information-solutions business will be the largest of the three new companies, with

annual revenue estimated at $5.8 billion.

Defense has been ITT's best-performing business segment in recent years as the company supplied

equipment for U.S. troops operating in Iraq and Afghanistan. The company's defense product portfolio

includes night-vision goggles, radios and jamming devices that disrupt signals to activate roadside

bombs. But sales and profit growth slowed significantly in 2010 as the U.S. Defense Department began

ratcheting down its spending.

Deep cuts in defense appropriations are expected in the coming years as the federal government looks to

lower budget deficits. In response, ITT has been expanding its defense business lines into civil aviation

and other non-defense sectors.

David Melcher, the current president of the defense unit, will be the chief executive of the new company.

ITT director Ralph Hake, who previously served as chief executive of appliance maker Maytag Corp., will

be the defense company's chairman.

The separation of the company is subject to regulatory approvals but doesn't require a vote by

shareholders, who would own stock in all three companies following the deal.

The breakup follows Motorola Inc. separating its consumer-focused smartphone and set-top-box business

from its business mobile and networks divisions at the end of last year, splitting into Motorola Mobility

Holdings Inc. (MMI) and Motorola Solutions Inc. (MSI). Food giant Sara Lee Corp. (SLE) and Fortune

Brands Inc. (FO), the maker of Jim Beam whiskey, Moen faucets and Titleist golf clubs, are both moving

forward with plans to split their businesses.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

Matt Jarzemsky contributed to this article.