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Case Code: FINC170
Case Length: 9 Pages
Period: 2012-2015
Pub Date: 2020
Teaching Note: Available
Organization : Samsung Biologics
Industry :Pharmaceuticals & Biotech
Countries : South Korea
Themes: Ethics in Accounting / IPO /Going Public
Case Studies  
Business Strategy
Human Resource Management
Leadership & Entrepreneurship

Samsung Biologics – Accounting a Subsidiary as an Affiliate

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BioLogics and Biogen entered into a joint venture Bioepis, in 2012 to develop biosimilars . BioLogics invested KRW 280.5 billion for a stake of 85% and Biogen invested KRW 49.5 million for 15% stake. Originally, Bioepis was to be a 50:50 venture, but it was finally set up as an 85:15 venture considering the risks and due to the fact that Biogen was not interested in co-managing the company. This made BioLogics consider Bioepis as a subsidiary. It was also reported that Biogen did not participate in the capital increase after a mandated increase in 2012-13, as it had no obligation to provide any additional funding. However, Biogen was granted the right to exercise the call option within a stipulated period by paying KRW 50,000 per share, to increase its ownership to 49.9%. For nine months ended September 2015, Biogen recorded a loss of US$ 12.5 million on its investment in Bioepis. ..

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The SFC launched a special audit in April 2017 and started the probe considering the ‘intentionality’ of the issue and in May 2018, it announced that accounting laws had been deliberately violated and that there were no grounds to change the accounting standards just before the listing. It objected to Bioepis being called an affiliate. The call option deal, though it had been entered into in 2012 when the JV was formed, appeared in the company’s financial statement only in 2014 it was alleged...


BioLogics claimed that valuation was switched due to agreement with Biogen and that it followed IFRS accounting rules, where the possibility of the call option being exercised meant Bioepis needed to be categorized as an affiliate not a subsidiary unit. This meant that the stake needed to be reflected by fair value and not book value...


In July 2018, Biogen exercised its call option to purchase additional shares, raising its stake to 50 percent minus one share. It paid US$ 700 million to acquire the stake, and was handed over 9,226,068 ordinary shares. After this, Biogen held 10,341,852 shares, which was one share less than a 50% stake...


Exhibit I: Samsung BioLogics Co. Ltd. - Statement of Comprehensive Income
Exhibit II: Samsung Biologics – Excerpt from the Annual Report
Exhibit III:Samsung BioLogics Co. Ltd. - Financial Position