US tycoon may be at center of China food scandal

Sheldon Lavin's company is the parent of the Chinese entity under investigation by Shanghai authorities for using expired meat.

By MSN Money Partner Jul 23, 2014 1:48PM
Credit: © STF/AFP/Getty Images
Caption: This picture taken on July 20, 2014 shows workers producing food at the Shanghai Husi Food Co., a factory of US food provider OSI Group, in ShanghaiBy Abram Brown, Forbes

The ruckus over expired meat in fast-food restaurants in China has placed a little-known Illinois company in the spotlight -- along with its wealthy chairman and chief executive Sheldon Lavin.

Chains like McDonald's (MCD), Yum Brands' (YUM) KFC, Burger King (BKW) and Starbucks (SBUX) have admitted to using expired meat from Shanghai Husi Food following an investigation by Shanghai authorities. Husi Food managers said they were "appalled."

"Our company management believes this to be an isolated event, but takes full responsibility for the situation and will take appropriate actions swiftly and comprehensively," the company said a press release.

Husi Food's corporate parent is far from China. It's the $5.7 billion (sales) OSI Group, a meat processor headquartered in Aurora, Illinois. OSI has long appeared on Forbes' list of the Largest Private Companies in America.

OSI is entirely owned by Lavin (an OSI spokeswoman confirms this and the revenue figure). His sole stake in the massive company raises an inevitable question: Is he a billionaire?

Not with the value of his company clouded by the concerns in China. Let's examine the price-to-sales multiples of similar publicly traded meat-processing companies. They range from roughly 0.2 times (for Tyson) to upward of 0.9 times sales (for Pilgrim’s Pride). 

Until the Chinese scandal clears up, there seems little guarantee that OSI could fetch the same valuation as those brand-name companies. Certainly if OSI was merely sold for parts, it would make Lavin a very wealthy man. 

But for now, Lavin won’t be appearing on either the Forbes 400 or the World's Billionaire rankings. The OSI spokeswoman couldn't be reached to comment on the valuation or the food problems.

For man with a big company, Lavin has kept a small profile. According to trade publication Independent Processor, Lavin was working as a consultant in 1970 when a 61-year-old company called Otto & Sons asked him to help arrange financing. They wanted the capital to build a meat-processing plant and become McDonald's Midwest supplier. 

He got the meat guys their money and continued to work for them. When the family changed its management in the late 1970s -- a father bowed out to make way for his sons and an expansion overseas -- Lavin joined full time. It was Lavin who pushed Otto & Sons (soon to become OSI) into foreign markets.

OSI today operates in 17 countries and sells its products in 85 nations. Its food could be set on the kitchen table at any time -- with OSI producing bacon, breakfast sausage, hot dogs, cooked beef and pork, chicken, pizza and breadsticks.

China does seem to be a country of recent focus. OSI has invested more than $750 million in building factories there (its ninth and tenth opened last October) in an effort to become vertically integrated. OSI's expansion gave it the ability to process more than 300 million chickens each year.

 Another $100 million is going toward the construction of two more factories, one in Shandong Province (to produce what OSI calls "specialty products") and one in Henan, to handle even more chicken.

--Andrea Murphy contributed reporting to this story.

More from Forbes

Jul 24, 2014 7:53AM
Can we be done with "global" now? And billionaires?
Jul 24, 2014 10:49AM
A US company may own it, but the problem is that the company is still a Chinese company with Chinese workers and Chinese managers. Who do you think is telling them to reuse old meat? And you can be sure that Chinese owned companies are 10 times worse. But the press over there know the rules of the game--you can't do a story like this on Chinese companies. This is the only way they can report on things like this--if the target is a foreign company. No Chinese person in the streets in his right mind would think Chinese companies are safer or better than foreign companies, no matter how many stories like this come out in the media.
Jul 23, 2014 6:01PM
China seems to be the country of choice, REALLY, I WONDER WHY ????
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