The move was welcomed by analysts who said it would allow the group to focus more clearly on improving the cards business and the struggling mail order operation. Shares in Fine Art, which crashed 40 per cent to 260p in a day after November's warning, recovered 35.5p to close at 276p yesterday.
Keith Chapman, chairman, said that the company had considered the possibility of a demerger for several years. "It will improve investors' understanding of the underlying strengths of the two businesses," he said.
The news came as Fine Art reported full-year underlying pre-tax profits to 31 March down 27 per cent to pounds 30.1m on sales 1 per cent lower at pounds 360m. Operating profits in the mail order business slumped 32 per cent to pounds 18m. The cause was a disappointing performance from the loss-making Dee Group, the home-shopping network bought in 1995 for pounds 2.25m.
The card and paper products division, where profits fell 11 per cent to pounds 22m, suffered from weakness in its wholesale side.
Brian Rayner of Peel Hunt, the stockbrokers, said: "This is bourne of necessity. There is no real relationship between the two sides of the business. Management can be much more dedicated in building up both sides."
Mr Chapman said the spun off greetings card business "would be the largest of its kind in Europe and extremely well positioned as the leading supplier to national retailers". Mr Chapman will remain as executive chairman of the mail order side and become non-executive chairman of the demerged greetings cards business.
Investors will be offered shares in the new business in proportion to their existing holding in the company. The group has maintained its 16.5p dividend.