Spanish renewable energy group Gamesa and German engineering giant Siemens said Friday they have agreed to combine their wind power businesses to create one of the world's largest makers of wind turbines.

The announcement followed months of negotiations between the two companies and it comes as demand for wind power surges with countries developing more renewable energy to comply with emissions cut targets.

"Siemens and Gamesa have signed binding agreements to merge Siemens' wind business with Gamesa," the Spanish group said in a statement on its website.

In a statement issued in Germany, Siemens said it would pay 3.75 euros per share to Gamesa's shareholders. With just over 279 million shares in issue, that would represent a total cash payment of just over one billion euros ($1.12 billion).

Siemens, Europe's biggest engineering company, will hold 59 percent of the new wind venture and Gamesa shareholders the other 41 percent, the two sides said.

The new company was expected to have an installed base of 69 gigawatts (GW) worldwide, an order backlog of around 20 billion euros, annual revenues of 9.3 billion euros and underlying or operating profit of 839 million euros, Siemens said.

It would have its legal domicile and global headquarters in Spain and will remain listed in Spain.

Its offshore headquarters would reside in Hamburg, Germany, and Vejle, Denmark.

Gamesa shares closed 5.61 percent higher at 18.06 euros on the Madrid stock exchange, while Siemens shares rose 1.54 percent to end the week at 92.29 euros in Frankfurt.

"The two businesses are highly complementary in terms of global footprint, existing product portfolios and technologies," Siemens said.

"The combined business will have a global reach across all important regions, and manufacturing footprints in all continents."

Siemens' wind power business had a strong foothold in North America and Northern Europe, and Gamesa was well positioned in fast-growing emerging markets such as India and Latin America, and in Southern Europe, the statement said.

"The combination of our wind business with Gamesa follows a clear and compelling industrial logic in an attractive growth industry, in which scale is a key to making renewable energy more cost-effective," said Siemens chief executive Joe Kaeser.

He added that both sides had not decided on the merged entity's new name.

To simplify the merger, French group Areva has been given a period of three months to decide whether to sell its stake in Adwen, an offshore wind power joint venture with Gamesa, or take it over completely.

It could either sell its 50-percent stake or buy Gamesa's 50-percent stake in that period, Siemens said.

"Alternatively, Areva can in this time divest 100 percent of Adwen to a third party via a drag-along right for Gamesa's stake."

- Wind energy to double -

Gamesa was hit hard by deep cuts the Spanish government made to subsidies for electricity produced from renewable sources after the country's economy slumped when the decade-long property bubble burst in 2008.

After posting a new loss in 2013, the company which is based in Spain's northern Basque region changed its board and restructured. Last year it posted a net profit of 170 million euros ($191 million).

"Gamesa needs financial support to develop in the offshore sector," said Angel Perez, an analyst with Spanish brokerage firm Renta 4.

The merger had been expected for months as Gamesa confirmed in January that it was in talks with Siemens to combine their wind activities.

But it had been held up because of Gamesa's joint venture with Areva.

Global wind energy capacity will nearly double in the next five years, largely led by further market growth in China, the Global Wind Energy Council, a Brussels-based industry group, said in April.

Cumulative wind energy capacity will rise to around 792 gigawatts (GW) by the end of 2020 from 433 GW at the end of 2015 as countries develop more renewable energy to comply with emissions cut targets and prices continue to fall, it said in the report.

Last year in Paris, almost 200 countries agreed a landmark deal to cut greenhouse gas emissions from 2020 with the aim of limiting global warming.

The Gamesa-Siemens deal is the latest in a string of tie-ups in the wind power sector.

Last year German turbine maker Nordex bought the wind power business of Spain's Acciona.

General Electric in 2015 boosted its offshore wind turbine portfolio when it completed the purchase of French firm Alstom's energy business.

bur-laf-spm/hmn/rl

GAMESA CORPORACION TECNOLOGICA SA

SIEMENS

AREVA

ALSTOM

ACCIONA

GENERAL ELECTRIC

NORDEX