The sweeping reorganisation, just three and a half years after it demerged from Zeneca, came as the group reported a one-third slump in profits in 1996 due to rising raw material costs and a price war in the industrial chemicals market.
Tioxide, the world's second biggest manufacturer of titanium dioxide - the white pigment used in everything from paint and plastics to food, ceramics and clothing - will be floated on the stock market in the next six to 18 months. The US investment bank Goldman Sachs has been appointed as adviser.
The flotation is expected to raise at least pounds 700m. Together with pounds 300m worth of property sales and the disposal of other industrial chemicals businesses, this will leave ICI with a pounds 1.5bn war chest to expand its presence in the paints market.
Charles Miller Smith, ICI's chief executive, said there would be a "selective but significant reduction" in its industrial chemicals business over the next three years through a combination of merger, sale or flotation.
At the same time ICI has set its sights on increasing the turnover of its paints business from pounds 2.4bn to pounds 4bn and making annual savings of pounds 400m through its "value gap" programme.
The continuing cost reduction drive will see a further 7,000 to 8,000 jobs go in the next two years, taking the ICI workforce down to about 55,000. In the last four years it has shed a fifth of its workforce and now employs more people in the Asia-Pacific region than in Britain.
When the Tioxide float is completed a further 3,000 jobs will disappear from the payroll. ICI bought out the half share of Tioxide it did not own from Cookson in 1990 in a deal that valued the business at pounds 320m. Since then it has invested more than pounds 250m in the company, which had sales last year of about pounds 600m.
Mr Miller Smith, who was brought in from the consumer goods group Unilever 18 months ago, said that the Tioxide disposal was part of a strategy of moving away from bulk chemicals and towards international businesses which were less cyclical, less capital intensive and closer to consumers.
The flotation has increased speculation about the long-term future of ICI's other basic chemicals businesses - chlorine and and polyester.
But Mr Miller Smith played down suggestions that ICI was intent on focusing solely on paints, explosives and materials and moving out of bulk chemicals altogether. "These are good businesses which we can make good returns on over and above the cost of capital."
Sir Ronnie Hampel, ICI's chairman, blamed the fall in pre-tax profits before exceptional charges from pounds 951m to pounds 603m on a "vicious" trading cycle. Prices in its industrial chemicals business had fallen by 10 per cent as customers destocked while feedstock costs, mainly oil, had risen sharply.
He added that the effects of higher oil prices, currency movements and lower industrial chemical prices would continue to be felt during the first half of the current year. The surge in sterling had virtually no effect on profits in 1996 but if the pound remained at its current levels then profits this year would be pounds 80m-pounds 90m lower.
ICI's paints division was the star performer in 1996. The acquisition of Bunge Paints, one of the largest paint manufacturers in South America, helped lift trading profits in the division from pounds 107m to pounds 171m.
As part of the management overhaul, Mr Miller Smith will focus on group strategic and financial issues. Rob Margetts will be responsible for the industrial chemicals division, Peter Kirby will take charge of the coatings business, which includes paints, and a third director is to be appointed to run the materials and performance chemicals business.
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