CRIMINAL CAPITALI$M
Corruption scandal puts billionaire BT shareholder under pressure

James Warrington

THE TELEGRAPH
Sun, 23 July 2023 

Franco-Israeli tycoon Patrick Drahi developed a reputation as corporate raider after years of executing debt fuelled acquisitions - STEPHANE DE SAKUTIN/AFP

“If you want to be successful, work hard, have fun and above all, listen and do not talk too much,” billionaire Patrick Drahi said in a rare interview in 2017.

The Franco-Israeli businessman appears to have taken his own advice. Despite building a fortune from his media and telecoms empire Altice, the tycoon has remained largely under the radar.

Virtually unknown in Britain until recently, Drahi has steadily been building his presence in the UK.


In 2019, he took control of iconic auction house Sotheby’s in a $3.7bn deal. And for the last two years he has tightened his hold over BT as his company has become the telecoms giant’s biggest investor.

Now, though, the reclusive billionaire is under the spotlight.

A major investigation into alleged corruption, tax fraud, forgery and money laundering by individuals and senior executives within his empire has provoked questions about governance at Drahi’s businesses.

Drahi and his company Altice have not been implicated but the scandal has prompted an internal investigation and sparked fears of reputational risk among staff.

At the heart of the scandal is Armando Pereira, the co-founder and former chief operating officer of Altice who is often said to be Drahi’s right-hand man.

Patrick Drahi will face questions as to how much he knew of the allegations now facing his right hand man Armando Pereira - ERIC PIERMONT/AFP

Pereira was one of several figures arrested in Portugal earlier this month in a major probe dubbed “Operation Picoas”, during which officials raided dozens of offices, homes and law firms across the country.

The department of investigation and criminal action (DCIAP) said it had made three arrests and seized documents and possessions – including luxury cars – with a value of around €20m.

Prosecutors accuse Pereira of taking part in fraudulent property transactions and concealing profits from asset sales while working at Altice Portugal. One of the deals under investigation is the sale of four buildings in Lisbon for €15m.

However, officials believe this could be only the tip of the iceberg and the fraudulent schemes could extend to other areas including football TV rights.

Illicit gains could exceed €250m, at the expense of both Altice and the state, according to media reports.

Pereira, who is 71 and described by local press as Portugal’s richest man, has been held in custody and began testifying this week.

A lawyer for Pereira said his client had been the “target of a widespread attack in Portugal in recent days”.

“The communication surrounding this operation was done in such a way that it led to his being immediately found guilty in public opinion,” the lawyer said, adding that his team will demonstrate “the reality is not so simple”.

Pereira last week denied all allegations against him during an appearance in court.

Altice Portugal, which has not been accused of wrongdoing, said it had started an internal investigation of its procurement and real estate sales and has suspended payments to entities targeted by the authorities.

Pereira no longer holds executive roles at Altice. Still, the scandal has shaken the foundations of the telecoms empire he helped to build.

“It’s obviously bad because it throws into doubt the reliability of the organisation and the governance,” says François Godard, an analyst at Enders Analysis.

“It has the immediate effect of forcing the company to scrutinise everything. You stop all your dealings, you stop all new contracts, you look at existing contracts and you have to run checks on all supply agreements.”

Godard adds: “Even if in a few months’ time we see that it was limited to one person and a few suppliers, in the meantime the whole business has been disrupted.”

Drahi is now battling to contain the fallout from the scandal.

Altice insists that its operations in Portugal are separate from the rest of the group. However, there are already signs the shockwaves from Pereira’s arrest will spread through the wider business.

Alexandre Fonseca, Altice Group’s co-chief executive and US chairman, this week announced he was temporarily stepping down.

Alexandre Fonseca oversaw Altice's Portuguese operations before becoming co-chief executive of the whole business - Carlos Rodrigues/Getty Images

Altice said the move was designed to “fully protect and safeguard” the company during an investigation into events that happened while Fonseca was chief executive of the Portuguese division.

In a defiant LinkedIn post, Fonseca insisted he knew nothing about the corruption claims, following up with the Martin Luther King quote: “Injustice anywhere is a threat to justice everywhere”.

Altice USA chief procurement officer, Yossi Benchetrit, has also been placed on leave during an internal investigation, as have several employees in the group’s Portuguese operations.

Dennis Mathew, chairman and chief executive of Altice USA, wrote in an internal memo seen by The Telegraph: “We take this investigation very seriously and will continue to act diligently and with urgency to make decisions that are in the best interest of our employees, customers, and shareholders.”

He urged staff not to be distracted by “speculation and rumours” in the media.

However, in France, where Altice owns mobile network SFR and news channel BFM, employees are starting to worry.

Portugal has become strategically important for Altice France, with various suppliers based in the country.

Earlier this week, union chiefs met with Arthur Dreyfuss, chief executive of Altice France, and Mathieu Cocq, head of SFR, to express their concerns about the investigation and the potential impact on jobs.

One union, the CFDT, said it was worried about reputational damage from the saga, “particularly vis-à-vis creditors and future lenders, when the group will once again need to raise debt in 2025.”

The scandal may also reignite scrutiny of Drahi’s ownership of a large stake in BT through a subsidiary of Altice.

While the 59-year-old, who was born in Casablanca to Jewish parents, is not implicated in any wrongdoing and Altice insists it is a victim of a scandal, the fact that Drahi’s right-hand man has been accused will provoke questions of what the chief executive knew and when.

The uncovering of an apparent large-scale fraud at Altice will also lead to questions about governance within the group.

Officials are already on high-alert about Drahi’s stake in BT. His initial investment in BT sparked a national security review, though the government ultimately decided to take “no further action” without sharing details of why.

In May, the tycoon increased his holding to 24.5pc, just shy of a blocking stake that would hand him significant control.

The saga will shift the focus again to Drahi’s status as the biggest shareholder in a company that controls critical national infrastructure.

Godard says the scandal “adds to the case of people saying that his investment in BT should be scrutinised and the Government should never have authorised him to go higher”.

Drahi has developed a reputation as a low-profile but aggressive corporate raider.

After founding Altice in 2002 alongside Pereira and Bruno Moineville, Drahi built the group through a series of high-profile acquisitions, including French mobile network SFR and Suddenlink Communications in the US.

An unsolicited $3.2bn takeover bid for French satellite giant Eutelsat in 2021 failed, but highlighted Drahi’s continued appetite for dealmaking.

Years of takeovers fuelled by low interest rates saddled Altice with more than $50bn of debt.

But Drahi – a self-described penny-pincher – has also established a reputation as a ruthless cost-cutter, stripping out layers of management at the companies he acquires and replacing laid-off staff with outsourced contractors.

Goddard says: “I’m sure BT would prefer for it to be one person doing bad things as opposed to governance being called into question.

“BT will be happy once it’s over.”