The far-reaching impact of a corruption investigation involving key figures at Altice, the telecommunications empire founded by French billionaire Patrick Drahi, is causing significant turmoil within the company. After Armando Pereira, co-founder of Altice, was detained in Portugal on July 13 as part of a criminal probe into allegations of corruption, tax fraud, and money laundering, Altice has taken immediate action. The company has suspended contracts with approximately 60 suppliers, initiated internal audits, and placed Yossi Benchetrit, Altice USA's head of procurement and Pereira's son-in-law, on leave. Additionally, the chairman of Altice USA, Alexandre Fonseca, and around ten other employees have been suspended.
This crisis comes as a major blow to the telecommunications business Drahi co-founded with Pereira over two decades ago. The investigation unfolds at a time when Drahi is dealing with the effects of higher interest rates across his heavily indebted companies and is eyeing expansion in markets like Germany and the UK. Drahi's net worth has decreased from $22 billion in June 2015 to $5.7 billion, as reported by the Bloomberg Billionaires Index. Drahi's representative declined to comment on the Portuguese corruption allegations.
Altice International has stated that the company is the victim of alleged fraud perpetrated by individuals. The company highlighted that Portuguese authorities have identified harmful practices and misconduct by certain individuals and external entities that have resulted in alleged fraud against Altice Portugal. Pereira will remain in custody until Monday or Tuesday, pending the judge's decision. His lawyers maintain his innocence and state that he has cooperated fully with authorities. The investigation led to numerous searches in homes and offices, resulting in multiple detentions.
The fallout from the Portuguese investigation has disrupted Altice's supply chain, leading to the suspension of relationships with vendors of equipment and services. This disruption is expected to impede progress on some of the company's networks. Among the suppliers suspended by Altice are JSC France, Edge Technology, Exaprobe Aciernet, One Repair, Excell Communications, and IT Center. JSC France, headed by Alvaro Gil Loureiro, is among the individuals detained in Portugal. Edge Technology was an intermediary for Chinese equipment maker Huawei Technologies, while Aciernet played a similar role for Nokia and Cisco.
To address the concerns of its employees, Altice France chairman Arthur Dreyfuss and Mathieu Cocq, CEO of its subsidiary SFR, held a video conference with the top 500 managers. They assured the managers that the company would thoroughly investigate the allegations, but avoided discussing the relationship between Pereira and Drahi. Employees were urged not to delete any documents or personal communications and to prepare for full transparency should authorities enter company premises.
Pereira had a significant influence on Altice's choice of suppliers. He would personally select certain suppliers and impose them, even if they were not initially chosen in the bidding process. Employees who raised objections were fired or sidelined. This influence was widely known within the company, and Drahi and Pereira were reported to have a close relationship.
The investigation has the potential to shake investor confidence and negatively impact Altice's credit profile. Moody's analysts noted that the probe indicates material weaknesses in internal controls and any corrective actions would take time to implement. Altice will need to review and reinforce its procurement approval processes, payment systems, purchase orders, and related processes to address these concerns.