The Spirit pub company has said it is ready to merge with Greene King, the pub and restaurant group that brews Old Speckled Hen and Abbot Ale.

Spirit said its board was willing to recommend a revised offer from Greene King worth 109.5p a share, valuing the company at £723m. Shares in Spirit rose more than 7% in early trading, to 101.75p. The takeover would leave Spirit shareholders with 29% of the combined company.

Spirit, which owns 1,200 pubs, rejected an offer of 100p a share from its larger rival last month, insisting that it undervalued the company and its “attractive prospects”.

Greene King, which owns 1,900 pubs and restaurants including the Loch Fyne and Hungry Horse chains, filed an improved bid before a takeover deadline on Tuesday that would have forced it to either make a formal offer or retreat. The two parties have agreed to extend talks to 30 October.

Spirit stressed there was no certainty an offer would be made and said further information would be provided when appropriate. The pubs group, which was split from Punch Taverns in 2011 and owns Flaming Grill restaurants and Good Night inns, is due to announce annual results on Wednesday.

Unveiling its annual results in July, Greene King said pre-tax profits were up 9% to £173m on revenues of £1.3bn. The group, which employs 23,000 people, has been battling HMRC in the courts over a highly artificial tax avoidance scheme that has been condemned by politicians of all colours.