By Patricia Kowsmann

LISBON-- Banco BPI SA's board on Thursday shot down a EUR1.09 billion ($1.2 billion) takeover offer from its largest shareholder, Spain's Caixabank SA, saying it undervalues the company.

Caixabank offered in February to buy the 55.9% of Portuguese lender BPI that it doesn't already own for EUR1.329 a share in cash. Shares of the bank closed Thursday at EUR1.46.

In a statement, BPI's board said under its calculations, BPI is valued at EUR2.04 a share. That excludes an extra EUR0.22 a share from synergies expected under the merger between the banks. Therefore, BPI said, "it doesn't recommend that its shareholders accept the bid."

BPI's stock has risen sharply this week after another shareholders publicly rebuked the Caixabank offer and said BPI should consider merging with Portuguese lender Banco Comercial Português SA instead.

Isabel dos Santos, Africa's wealthiest woman and BPI's second-largest shareholder with 18.6% of the bank, said a merger with Banco Comercial Português would create a large domestic lender with operations in Angola, Mozambique and Poland and a diversified shareholder base. She also said Caixabank's offer didn't reflect the value of BPI.

BPI didn't comment on Ms. dos Santos' remarks. Banco Comercial Português said Tuesday that it is "available to analyze" a possible merger if BPI shows interest.

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com

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