Drahi’s Telecom Empire Wrestles With Corruption Probe Fallout

The impact of a corruption probe that has ensnared some of the most powerful figures at Patrick Drahi’s Altice group is rippling through the French billionaire’s vast telecommunications empire.

Since Altice co-founder Armando Pereira was detained in Portugal on July 13 as part of a criminal investigation into alleged corruption، tax fraud and money laundering، the company has suspended contracts with about 60 suppliers، launched internal audits، and has put its US head of procurement Yossi Benchetrit — Pereira’s son-in-law — on leave. Alexandre Fonseca، chairman of Altice USA، has also been suspended، along with about ten other employees، the company said.

Serious blow

The crisis is a serious blow to the business Drahi founded with Pereira just over two decades ago and comes at a time when the Switzerland-based billionaire grapples with the effects of higher interest rates at his network of debt-laden companies and eyes expansion in markets like Germany and the UK.

Drahi has a net worth of $5.7 billion، according to the Bloomberg Billionaires Index، down from $22 billion in June 2015، when he was still seeking large takeovers in Europe. A representative for Drahi declined to comment on the Portuguese corruption allegations.

Altice International said that the company is the victim of alleged fraud by individuals.

Harmful practices

“Portuguese authorities have identified that Altice Portugal has allegedly been defrauded as a result of harmful practices and misconduct of certain individuals and external entities،” the company said in an emailed statement.

Pereira will remain in custody until Monday or Tuesday pending a decision from the judge، one of his lawyers، Pedro Marinho Falcao، told Bloomberg News. The former executive، who gave two days of testimony before the judge، is “completely” innocent، said Manuel Magalhaes e Silva، another of Pereira’s lawyers. He was one of several people detained after police carried out 90 searches in homes and offices on Thursday and Friday last week in what authorities said was a three-year investigation.

The fallout from the Portuguese investigation has thrown Altice’s supply chain into a state of upheaval as the company untangles and reorganizes relationships with vendors of equipment and services، according to people familiar with the situation. It’s expected to slow work on some of its networks، they said.

Among the suppliers suspended by Altice are JSC France، Edge Technology، Exaprobe Aciernet، One Repair، Excell Communications and IT Center، people familiar with the matter said. Edge was an intermediary for Chinese equipment maker Huawei Technologies Co Ltd.، while Aciernet served the same type of role for Nokia and Cisco، according to one of the people. A French corporate filing shows JSC France is headed by Alvaro Gil Loureiro، who is among the people detained in Portugal.

The focus on day-to-day business

On Thursday، Altice France chairman Arthur Dreyfuss and Mathieu Cocq، the CEO of its subsidiary SFR، gathered the top 500 managers on a video conference in a bid to reassure them and asked that the focus remain on day-to-day business، according to two people who attended the meeting.

The executives avoided questions about the relationship between Pereira and Drahi during the call، and said that Altice would thoroughly investigate the allegations، one person who attended the meeting said. French employees were also asked by managers not to delete any documents or personal communications and to prepare to provide full transparency should authorities enter company offices، the people said.

Pereira has been Drahi’s right-hand man at Altice and was responsible for handling key business operations، including procurement.

French union CFDT، which represents Altice workers، said it “recalled the enormous weight of Pereira in the running of our company and the terror he still inspires in the teams،” during a meeting with management Tuesday، according to a memo sent to members، seen by Bloomberg News.

Pereira would tell employees it was his company and order them to pick certain suppliers، said people familiar with the matter. In some cases، he imposed suppliers that weren’t initially selected in bidding processes and fired or sidelined staff who complained، they said. This was particularly true for suppliers providing services such as network deployment and maintenance.

Investors confidence

A former Altice France executive said that Pereira’s influence over the choice of suppliers was widely known in the company. Another former executive at Altice France said that Drahi and Pereira remain close.

A representative for Pereira declined to comment. Altice declined to comment.

The probe could also serve to shake investor confidence. It is negative for Altice’s credit profile “as it indicates material weaknesses in internal controls،” Moody’s analysts wrote in a note on Thursday. “While the company will review and reinforce the approval process on all procurement، payments، purchase orders and related processes، any corrective actions would take time to be implemented.”