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(Adds comments from chairman, union, background)
MUNICH, May 7 (Reuters) - Siemens said on Tuesday it would spin off its gas and power business, separating the division which has dragged on the Germany engineering company's performance due to collapsing demand for gas turbines amid the rise of renewable power.
Siemens said the new business would create a "major player" in the energy market with business volume of 30 billion euros ($33.5 billion) and over 80,000 employees.
The business, which includes the company's oil and gas, conventional power generation, power transmission and related services businesses, is to be carved out with the aim of a subsequent public listing planned by September 2020, Siemens said.
In addition, Siemens plans to contribute its majority stake in the wind energy company Siemens Gamesa Renewable Energy currently 59 percent to Gas and Power.
Last week Reuters, citing sources familiar with the matter, reported that Siemens was considering carving out its Gas and Power unit whose profit shrivelled by three quarters to 377 million euros ($421 million) in 2018 as revenue fell 19 percent.
The decision to separate Gas and Power was approved by Siemens supervisory board, which met on Tuesday ahead of the company's second quarter figures on Wednesday.
The Munich-based company said it would remain an anchor shareholder in Gas and Power, but will hold less than 50 percent of the new company. Its future focus would be on its Digital Factory and Smart Infrastructure operations.
"It's the right thing to do; it's necessary and courageous to trigger the planned changes when the company is doing well," said Siemens chairman Jim Hagemann Snabe.
Unions also supported the decision, saying the business was better off outside of Siemens.
"If the unit (Gas and Power) were to stay part of Siemens, investments would be further reduced. Thus the business would literally be starved to death," Siemens works council head Birgit Steinborn, who is also deputy chairwoman of the company, said in a statement.
"With the planned initial public offering in Germany, co-determination will be maintained and Siemens remains committed to keeping jobs in Germany and Europe. In a joint venture, for example with a Japanese competitor, we would have seen that at great risk," she added.
($1 = 0.8953 euros) (Additional reporting by Arno Schuetze; Editing by Edward Taylor and Andrew Cawthorne)