* State fund wants to benefit from Adcock turnaround
* Opposition will likely derail rare Chile-S.Africa deal
* State fund says not opposed to foreign investment
* Adcock shares little changed at 71 rand
By Tiisetso Motsoeneng
JOHANNESBURG, Dec 20 (Reuters) - South Africa's state pension fund came out against a $1.2 billion bid for drugmaker Adcock Ingram on Friday, almost certainly derailing the offer from Chile's CFR Pharmaceuticals.
The state-run Public Investment Corporation (PIC), Adcock's top shareholder, said it did not want to swap its Adcock stock for that of Santiago-based CFR, saying more value could be had from changes in Adcock's management.
Opposition from the PIC, which owns around 19 percent of Adcock, is likely to sink the cash and shares deal that requires approval from shareholders holding 75 percent of the target's equity.
It also strengthens the hand of rival firm Bidvest, which went straight to Adcock investors with an all-cash bid for more than a third of the company.
"This deal is going nowhere. CFR should do itself a favour and walk away," said one Adcock shareholder who spoke on the condition of anonymity. "There's no way they would get 75 percent shareholder backing."
No one was immediately available for comment at CFR.
In a statement, PIC Chief Executive Elias Masilela said: "We believe that CFR shares are fully valued, whilst Adcock Ingram's share price has the potential to rise substantially in value through better management."
Masilela also voiced concerns about investing in a family-controlled business, as the combined Adcock and CFR would be majority-owned by CFR's founding Weinstein family, which currently owns 73 percent of the Chilean firm.
"Given our experience of corporate governance challenges with some family-controlled businesses locally, we believe this introduces risks to the investment, especially considering the short listing history of CFR," he said.
Shares of Adcock were little changed at 71 rand at 1034 GMT, closer to Bidvest's offer of 70 rand a share than CFR's 74.50 rand.
EMERGING MARKETS POWERHOUSE
Together the PIC and Bidvest hold at least 26 percent of Adcock, enough to block the deal when shareholders vote on the 12.8 billion rand ($1.2 billion) takeover next month.
PIC said it believed more value could be extracted for Adcock shareholders through changes in the way it is managed, but gave no further detail.
CFR's effort to build an emerging-markets powerhouse with operations in Latin America, Asia and Africa has been in doubt since Bidvest recently increased its Adcock stake to 7 percent.
The PIC is also the top shareholder in Bidvest, leading to some speculation the fund is behind Bidvest's counter offer, something Bidvest Chief Executive Brian Joffe has denied.
Joffe has built Bidvest into a sprawling conglomerate with interests in everything from car sales to catering by snapping up underperforming companies, cutting costs and taking advantage of his group's vast customer base.
CFR, which last week sweetened its offer by 1.6 percent in an attempt to woo the PIC, has since accused the fund of protectionism.
The PIC responded to that charge on Friday by saying it was not opposed in principle to foreign direct investment (FDI).
"The PIC supports foreign direct investment in South Africa as long as such FDI has predictable long-term benefits for the South African economy," Masilela said, citing the fund's backing of Wal-Mart's acquisition of retailer Massmart, a deal approved in 2012.
South Africa needs foreign investment to create jobs and help bolster weak economic growth, currently around 3 percent. The official unemployment rate is around 25 percent.
However Pretoria has a record of scuppering cross-border deals. Most recently it rejected a $385 million offer from South Korea's KT Corp for 20 percent of fixed-line operator Telkom SA, which the government sees as critical in its plan to roll out internet service to the poor.