* Pension fund threatens to derail $1.2 bln deal
* CFR CEO says objections not on commercial merits
* S.Africa has a history of sinking cross-border deals
(Recasts, adds details and economist comments)
JOHANNESBURG, Dec 17 (Reuters) - Chile's CFR Pharmaceuticals has accused South Africa's state pension fund of protectionism for opposing its $1.2 billion bid for drugmaker Adcock Ingram, a sensitive charge in a country keen to attract capital but wary of foreign takeovers.
The state-run Public Investment Corporation (PIC), Adcock's top shareholder, on Sunday rejected a sweetened cash and stock bid from Santiago-based CFR, saying it wanted all cash.
CFR Chief Executive Alejandro Weinstein shot back in a statement on Tuesday saying the PIC's real objection was to foreign ownership, citing comments by the fund's chief investment officer in July that it would prefer a local owner.
"Criticisms levelled at our offer by the PIC have little to do with commercial merits and are instead intended to allow a local buyer to succeed over a foreign buyer," Weinstein said.
"The current approach appears to be driven by protectionism."
No one at the PIC was immediately available for comment.
While South Africa's ruling African National Congress (ANC) has a history of blocking takeovers by overseas firms, or foisting onerous conditions on deals, the government itself has backed CFR's 12.8 billion rand ($1.2 billion) takeover.
That is a marked contrast to Pretoria's handling of Wal-Mart's takeover of local retailer Massmart, which saw it take the world's largest retailer to an anti-trust court. That deal was approved in 2012, along with stringent conditions on how Wal-Mart would operate in South Africa.
"I'm not sure I would put this one in the same category as Wal-Mart," said Dennis Dykes, chief economist at Nedbank in Johannesburg, referring to the CFR deal.
"(The PIC) are looking at it from an investment point of view. And I think that probably is the right way of looking at it."
While the PIC's objection may be over the structure of the deal, the country's image among investors has been tarnished by a string of failed takeovers, illustrating the difference between former President Nelson Mandela's economic pragmatism and leftist members of government and unions still suspicious of foreign capital.
South Africa desperately needs foreign investment to create jobs and help bolster weak economic growth that is currently hovering around 3 percent. The official unemployment rate is around 25 percent.
Analysts worry that mixed signals from the government over takeovers could eventually send foreign investors north into faster-growing African markets.
Last year, South Africa 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.
In that deal, the PIC backed the foreign takeover, departing from the government's opinion.
CFR is also battling a counter offer for Adcock from Johannesburg-based Bidvest Group, which has gone straight to shareholders with an all-cash offer for a little over a third of Adcock.
The PIC is also Bidvest's top shareholder, leading to speculation the fund is behind the counter bid, something Bidvest's chief executive has denied.
CFR, which is looking to build an emerging markets powerhouse with operations in Latin America, Asia and Africa, needs backing by shareholders holding 75 percent of Adcock for the deal to go through.
Bidvest, a sprawling conglomerate whose businesses include car sales and catering, has increased its Adcock stake to about 7 percent, enough to torpedo the deal when combined with the PIC's roughly 19 percent.
CFR is offering 74.50 rand worth of cash and shares for each Adcock share, based on a value of 2.334 rand per new CFR share. The final ratio of cash to shares will only be determined after a pending rights issue by CFR.
Bidvest is offering 70 rand a share.
Adcock stock was down 0.6 percent at 70.07 rand at 1140 GMT.
($1 = 10.3158 South African rand)
(Editing by Pascal Fletcher and Mark Potter)