The pulp, paper and power unit, whose products include paper machines and power plants, generated about 40 percent of Metso's net sales of 7.5 billion euros last year. However, the unit's performance has been dampened by a global downturn in paper demand.
Metso, which last month posted a 3 percent drop in underlying core earnings to 196 million euros, said the demerger would help accelerate growth in both the new company and the remaining units - Mining and Construction and Automation.
The paper machine business, which makes about half of its sales from the unit being spun off, has been hit by a decline in magazines and newspapers as consumers switch to digital devices. Last year, Metso slashed some 500 jobs from its Finnish paper units.
Metso management believes that the demerger plan will be approved by the company's board by the end of the second quarter. If the plan goes ahead, the new company will be listed on the Helsinki exchange before the end of this year.