Debt and scandal throw billionaire Drahi’s empire into turmoil
At Goldman Sachs’s gleaming Plumtree Court offices in London on Sept. 6, Patrick Drahi pledged something that would once have been unthinkable: His willingness to put every part of Altice, the telecommunications and media giant he cobbled together over 30 years, up for sale.
“Everything is open. ... It’s just a question of offer and demand,” the French-Israeli billionaire told about 200 debt investors gathered in a packed auditorium and several more on Zoom, according to an unofficial transcript of the meeting seen by Bloomberg. “All in, man, all in. Plus the Eiffel Tower. OK?”
The 60-year-old tycoon’s debt-fueled acquisitions when interest rates were low put his group among Europe’s most leveraged companies and one of the region’s largest junk-rated borrowers. Inspired by “Cable Cowboy” John Malone, Drahi expanded in Europe, Israel and the U.S., with his group’s independent units piling on a total of about $60 billion in debt with the help of some of the world’s biggest financial institutions.
Now, rising interest rates are swelling financing costs and putting his business model into question. To make matters worse, Altice is entangled in a corruption scandal involving Drahi’s innermost circle, and the group’s businesses are flailing. Its biggest unit, French telecoms operator SFR, has been steadily bleeding customers, losing 235,000 mobile clients in the first six months of this year.
Against that backdrop, Drahi is racing to line up asset sales before crunch time hits — with €20.1 billion ($21.3 billion) due before the end of 2027. Over the next 12 months, he wants to cut leverage to around five times earnings, or about €4 billion, suggesting the need to raise as much as €3.5 billion through asset sales.
The divestments will mark a reversal for this serial buyer of assets, who is having to unravel an empire that gave him a net worth of about $22 billion at its peak, according to the Bloomberg Billionaires Index. The reputation of the self-made tycoon — who counts the auction house Sotheby’s among his personal assets — has been hammered.
“This is clearly the worst situation he’s been in,” says Thomas Coudry, a managing director at the independent investment bank Bryan, Garnier & Co. and a former SFR finance director who left a year after Drahi took over the mobile operator in 2014. “The house of cards is tumbling like it has never tumbled before.”
Losses for investors on Altice debt continue to swell. Since Dec. 30, bonds issued by Altice International and Altice France Holding SA have lost €918 million in market value, while the rest of the Bloomberg Euro High-Yield Index — excluding debt that has matured, been called, defaulted or was newly issued — gained €5.7 billion.
Drahi, who declined to be interviewed for this story, spoke via Zoom to unions representing employees in France on Oct. 17. He said he was “very calm” since the next really big pile of debt is only due in 2027. Cooling economies and “the current geopolitical situation will bring rates down,” he predicted. He called on employees to help with what he said was the group’s “brand-image problem.”
“There are no structural problems,” he said.
That’s the narrative he presented to investors in London and New York in September as he prepared the ground to potentially renegotiate and postpone debt-refund deadlines. Cracking jokes and sounding both confident and defensive, Drahi painted a rosier picture of Altice’s outlook than its current subpar state suggests, investors present said.
In the past when the group’s results were disappointing, yield-hungry investors allowed Altice to push its debt maturities forward without questioning its long-term viability, said Florian Chapel, a portfolio manager at Ironshield Capital Management. But now, he said, higher rates, the corruption case and disappointing earnings with limited cash flows make an outright refinancing of short-term and midterm debt difficult, forcing divestments or equity sales.
That said, the group’s outsize presence in the speculative-grade market still draws investors — Altice International was able last month to raise €800 million in a term loan to redeem debt due in 2025, albeit paying double the rate of the older paper.
“The good news for Drahi is that he should be able to find enough liquidity to deal with the 2025 and 2026 debt maturities, giving him at least three years until the next debt-maturity wall,” Chapel said. “That’s plenty of time to reassure stakeholders on the recent governance issues and to try to turn around the business.”
Trouble is, Drahi’s record for boosting liquidity via asset sales isn’t encouraging. Potential buyers say Drahi may put unrealistic price tags on the group’s assets, something he’s done in the past. His effort in 2021 to sell Altice’s Portuguese unit drew initial interest from Blackstone Inc., CVC Capital Partners, Apollo Global Management Inc. and others but was called off because offers fell short of the €7 billion he was seeking.
“I don’t see Drahi in a position to value his group with large multiples,” said Bryan, Garnier’s Coudry.
Altice’s stable of businesses includes SFR, the No. 2 mobile operator in France; Meo in Portugal; and Hot in Israel. The group is the biggest shareholder of BT in the UK and owns Suddenlink and Cablevision in the U.S. SFR has posted a series of disappointing quarters, while Altice USA’s shares have plummeted more than 90% since it was listed six years ago. The group’s indebtedness has limited investments in products and services in intensely competitive markets.
“Trust has to come not just from Drahi’s ability to manage his debt ratio but also from his ability to get good results from his businesses, which is not the case in the short term,” said Pierre-Francois Merveille, a high-yield credit analyst at Oddo BHF.
The tycoon has hired advisers Lazard, BNP Paribas, Goldman Sachs and Morgan Stanley for the sale of parts of his group, said people familiar with the matter, who asked not to be identified because the information isn't public. The banks declined to comment.
Internal estimates at Altice see the data centers fetching as much as €1 billion. Drahi has expressed reluctance to sell his media business, which includes the popular French news channel BFM TV, because it’s doing well and is core to his strategy. It would take a high price — in the range of €1.5 billion to €2 billion — to persuade him to sell it, said people familiar with the matter, asking not to be identified because the information isn't public. For his most valuable and most indebted asset, SFR, Drahi favors selling a minority stake to private equity investors, Bloomberg has reported. Altice Portugal is still on the block.
Some private equity firms, sovereign wealth funds and telecom industry players are eyeing assets including SFR and the group’s stake in XPfibre in France. Morgan Stanley Infrastructure Fund is in exclusive talks to buy its French data centers. Altice media has drawn interest from Drahi’s fellow billionaires in France.
Still, it’s not clear how quickly or easily any of these deals can go through. The company is working on several options, with no rush to meet deleveraging objectives, an Altice spokesman said in response to Bloomberg queries, declining to comment on specific sales.
Cutting debt and reviving the group’s businesses aren’t the only fronts Drahi is fighting on.
About two months ago, a Portuguese investigation led to the arrest of his longest-serving business partner and fellow billionaire, Armando Pereira. Prosecutors uncovered a network of suppliers and intermediaries who allegedly benefited from kickbacks linked to contracts awarded by Altice, not just in Portugal but also in France and the U.S.
Pereira’s lawyers have said he’s the victim of a trial by the media that has found him “guilty in public opinion” and that the “reality is not so simple,” according to a statement issued in July. More than 15 employees have been suspended, fired or left the company after the investigation, and some suppliers have been banned worldwide. No one has admitted any wrongdoing.
“There’s only downside risk from that investigation,” said Jens Vanbrabant, head of European High Yield at Allspring Global Investments.
Pereira, 71, a co-founder of Altice and Drahi’s right-hand man, was responsible for the technical side of operations, including procurement. Detained along with two other Portuguese men who allegedly set up businesses that won supply contracts from Altice, Pereira remains under house arrest. He and his lawyers declined to comment on the investigation.
Altice USA’s chief procurement officer, Yossi Benchetrit — Pereira’s son-in-law — was fired in August after he refused to engage with the company’s investigation. A lawyer representing Benchetrit declined to comment but pointed to a previous statement highlighting that his client hadn’t been summoned for questioning in any jurisdiction.
Tatiana Agova-Bregou, an executive director at Altice France, was placed on leave starting Aug. 1. She was in a romantic relationship with Pereira and is suspected by Portuguese prosecutors of benefiting from a €1.7 million apartment near Paris bought for her by Hernani Antunes, Pereira’s associate, said people familiar with the matter. Agova-Bregou’s lawyer said that she has so far not been sanctioned by Altice or presented with any evidence of wrongdoing on her part and that she is not the owner of the apartment. Autunes’ lawyers declined to comment.
The investigation is still underway in Portugal and could take months or even years. It’s unclear whether French and U.S. authorities will open similar investigations. Altice USA said it is conducting an internal investigation and reviewing its supplier and vendor relationships. A broad audit has been launched in France for staff in the purchasing department.
Altice says it’s a victim of the alleged wrongdoing, although it has yet to bring legal action against any of the people allegedly involved. In his meeting with unions this month, Drahi said it was “stupid” to have centralized procurements. “Purchasing policy is now carried out country by country, under the authority of the CEOs,” he said.
Drahi — who’s based in Zermatt, Switzerland, but frequently jets around on his private plane to Tel Aviv, Paris, London and New York — hasn’t been summoned by the Portuguese prosecutors.
He told investors he felt “betrayed and deceived” by those being investigated. However, Bloomberg News talked with more than a dozen people, including current and former employees and suppliers, who said procurements at the group were always murky and questionable. With alarms raised over the years by auditors, employees and unions, some investors question how someone as hands-on as Drahi could have been unaware.
“The group is known to be very centralized, with few key managers, and it looks like Drahi trusted his associate, which led to cracks in internal controls,” said Oddo’s Merveille.
Needled in September by an analyst about how he could have missed such practices at the group, Drahi turned on him to ask whether he was married and how he could be sure his wife wasn’t cheating on him. “That’s how I feel about these individuals,” said the tycoon.
Although Drahi hasn’t been dragged into the corruption scandal, he has had other brushes with the law. He’s accused in Switzerland of faking a separation from his wife for tax reasons, according to the media outlet Heidi.News, which cited sources at the Swiss tax authority. The case, with Swiss authorities seeking back taxes and penalties, is ongoing. Drahi’s representatives and his lawyers in Switzerland declined to comment on it.
The financial damage from Altice’s Portuguese investigation is small, but the hit to the group’s reputation is significant, said Benoit Maynard, a Natixis analyst. “In terms of image, the impact of PereiraGate is far more negative and raises questions of corporate governance and internal control,” he said in a note dated Sept. 8.
Altice, Drahi and their representatives declined to comment on the investigation.
Drahi’s association with Pereira goes almost to the beginning of his career. The two men came from very different backgrounds, but their ambitions and complementary skill sets brought them together.
Drahi, born in Morocco, is the son of two math teachers who moved to France as a teenager. He went on to study at the country’s elite engineering school, Polytechnique, telling students there decades later that he found his career inspiration by looking at the Forbes rich list.
Pereira, an automobile collector and a fan of rally-car racing, was born into “the poorest family” of Guilhofrei, near Braga in Portugal, according to the summary of his never-published autobiography titled The Barefoot Billionaire. He immigrated to France in 1966 and climbed the ranks of a construction company before launching his own cable installation business in 1985.
He met Drahi, who was starting a cable operator, in the mid 1990s, and they co-founded Altice in 2002 with the goal of consolidating players in the sector. Pereira, who held various titles, including executive CEO of SFR and COO of Altice Europe, has been a dominant presence at the group even when he had no formal role.
He often pressed suppliers for rebates of up to 30%, said company insiders, and was known at the group as a ruthless cost-cutter. He slashed SFR’s head count by a third — roughly 5,000 jobs — after Altice bought it in 2014, and took a similar approach at Portugal Telecom.
Internal videos seen by Bloomberg News show Pereira’s management style, which union representatives characterized as “brutal.” Post-COVID, he participated in a Q&A session, where he said he saw no point in compensating employees for their personal internet bills for the company’s work-from-home policy. Another video shows him lashing out at former executives before a large crowd during a company event, prompting nervous laughter from Drahi, standing next to him.
After the Portuguese investigation became public, Altice said Pereira had not been a direct shareholder since 2005. But Drahi said on an investor call in August that his associate had a 20% carried interest in his other ventures, without elaborating, and arguing that the matter is private.
A trust contract known as “fiducie” under Swiss law, signed in 2019 and running until 2080, shows that Pereira has a 20% interest in the holding company of Sotheby’s. Other documents seen by Bloomberg show that the two men shared business interests and co-invested in ventures such as Altice Europe, Altice USA, SFR’s office buildings in Paris, a private jet, a yacht, and land on the Caribbean island of Nevis.
Drahi is now openly distancing himself from Pereira. Conversations with the lawyers and advisers of the two former partners show they have entered a quiet communication war as they brace for potential conflicts that could end up in tribunals and ultimately weigh on the fate of Drahi’s empire.
As he grapples with the twin challenges of debt and scandal, investors say Drahi may have to come up with a whole new model.
“The two pillars, financial and human, on which he built his group are turning against him,” said Bryan, Garnier’s Coudry. “He built his empire on debt, and it’s starting to crumble because of it. And he built his group with a small circle of people at the helm, which is also turning against him. It's the combination of the two that's put him in a corner today.”