* Board accepts raised offer of 8.1 SPS shrs per Jelmoli shr
* Values company at around 1.7 bln Sfr
* Rejected initial offer of 7.7 SPS shrs per share on June 2
* Combined company with 8 bln Sfr real estate portfolio
* Jemoli down 2.8 percent, underperforming small caps index
(Adds analyst comment, share price, links)
ZURICH, June 12 (Reuters) - Swiss retail real estate company Jelmoli has agreed to an improved takeover bid from Swiss Prime Site, valuing the company at about 1.7 billion Swiss francs, after rejecting a lower offer earlier in June.
Jelmoli, best known for the Zurich department store of the same name, said late on Thursday SPS had raised an initial June 2 exchange offer from 7.7 to 8.1 SPS shares for one Jelmoli share, which the Jelmoli board had recommended to shareholders.
"I am proud to be associated with a transaction which will create one of Europe's leading real estate companies unprecedented in its scale in Switzerland," said Jelmoli Board Chairman Christopher Chambers.
The new offer follows the June 2 rejection of a lower bid after Swiss Prime Site bought 29.89 percent of Jelmoli from Geneva-based investment company Pelham Investments and offered to purchase the outstanding Jelmoli shares for 7.7 SPS shares each.
The new offer values Jelmoli at 420.80 Swiss francs per share based on the 51.95 franc closing price of SPS on June 10, a premium of less than 2 percent compared to Jelmoli's June 11 close of 413 francs.
SPS will conduct a capital raising to pay for the acquisition by issuing around 23.5 million new shares, to be exchanged for the 2.9 million Jelmoli shares it does not already own.
"The new exchange ratio leads to a Jelmoli price of CHF 414.70 per share... Analysts expected even higher prices of up to CHF 450 per Jelmoli share," said a Julius Baer analyst in a research note.
Jemoli shares had fallen 3.4 percent to 399 Swiss francs by 1113 GMT, underperforming the Swiss small cap index, while SPS shares were up 1 percent.
"People had expected more, mainly because Jelmoli board member Walter Fust had talked about a higher price," one trader said.
Vontobel analyst Patrick Laager also said the SPS offer was below his company's estimate of 8.5 SPS shares per Jelmoli share, but added that, in view of significant potential earning accretions, his company advised Jelmoli investors to accept the offer and SPS investors to accept the capital increase.
SPS said in a separate statement that Jelmoli's agreement meant the integration of the companies could be implemented "immediately and more efficiently".
The merger will create Switzerland's biggest real estate firm with a portfolio worth about 8 billion Swiss francs ($7.43 billion). Jelmoli said that upon completion of the offer, Jelmoli shareholders will have a share of approximately 47 percent of the combined company.
Jelmoli, which spun off its Athris unit at the end of March, said there was no adjustment in an exchange offer for the planned issuance of shares in Basel-based real estate development unit Tivona.
($1=1.077 Swiss Franc) (Reporting by Martin de Sa'Pinto; Editing by Jon Loades-Carter and Simon Jessop)