By Jeannette Neumann And Patricia Kowsmann 

MADRID--Spain's Caixabank SA on Thursday said it is dropping its takeover bid for Portugal's Banco BPI SA after shareholders of the Portuguese bank rejected the lender's proposal to lift a voting rights cap.

Earlier Thursday, Portugal's market regulator had suspended BPI shares from trading because of a pending announcement, without providing details on the contents or timing of the announcement.

The suspension came after BPI shareholders on Wednesday rejected Caixabank's proposal to lift a 20% cap on the Spanish bank's voting rights. Analysts and investors said they had expected shareholders to vote against Caixabank's proposal to remove the voting cap after major BPI shareholders had been vocal about their aversion to the EUR1.09 billion ($1.23 billion) takeover bid, claiming the offer price was too low.

Caixabank offered in February to buy the 55.9% of the Portuguese lender that it doesn't already own for EUR1.329 a share in cash. The removal of the 20% cap on voting rights was a condition of that offer. Some investors and analysts said they anticipated that Caixabank would withdraw its takeover bid after the voting rights cap wasn't lifted.

Write to Jeannette Neumann at jeannette.neumann@wsj.com and Patricia Kowsmann at patricia.kowsmann@wsj.com

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