(Reuters) - Britain's Spirit Pub Company Plc SPRTC.L said its board was in talks with brewer and pub owner Greene King Plc (GNK.L) on a revised 109.5 pence-per-share takeover offer, valuing Spirit Pub at 723.3 million pounds ($1.16 billion).
The renewed cash-and-stock offer represents a 20 percent premium to the stock's closing price on Friday.
Shares in Spirit Pub rose as much as 12 percent to a record high of 101.75 pence while Greene King rose 1 percent to 775 pence on Monday morning on the London Stock Exchange.
"There is clearly a high chance now for the deal proceeding," analyst Jeffrey Harwood of Oriel Securities told Reuters.
The revised proposal comprises 0.1322 Greene King share and 8 pence in cash per Spirit share, the pub chain said in a statement on Monday.
The proposed deal would result in Spirit Pub shareholders owning about 29 percent of combined new Greene King.
"The price is within the range which we expected of 109.5 pence. So ... it's a good transaction for Spirit shareholders. There would also be significant savings Greene King can achieve by putting the two businesses together. So we see it as a favorable transaction for Greene King too," Harwood said.
Spirit Pub last month rejected a 661 million pounds takeover approach from Greene King, which runs breweries as well as pubs, saying the offer undervalued the company.
Greene King is shifting its focus to its own-managed retail business, comprising restaurants, hotels and pubs as it competes for a bigger slice of the dining market, and to that end is reducing its tenanted and leased estate.
"We believe the new group, which we have christened Spirit King, would be a much stronger investment proposition, with higher quality earnings, stronger FCF (free cash flow) and better growth prospects than Greene King and Spirit currently offer as separate entities," analyst Nigel Parson of Canaccord Genuity said in a note.
Spirit, which was spun out of Punch Taverns Plc (PUB.L) in 2011 and runs chains such as Chef & Brewer, Fayre & Square and Flaming Grill, is split into 450 leased pubs and more than 750 managed pubs, with the latter accounting for nearly 90 percent of the group's revenue.
Both groups also benefit from a larger exposure to the economically stronger London and south east regions of Britain.
In May, Greene King pulled out of talks to buy the majority of pubs owned by rival Orchid Group, which were eventually sold to Mitchells & Butlers (MAB.L) for 266 million pounds.
Spirit Pub shares were up 9.8 percent at 100 pence while Greene King were up 0.6 percent at 772.5 pence by 4:56 a.m. EDT.
Reporting by Aastha Agnihotri in Bangalore; Editing by Gopakumar Warrier