Altice's Patrick Drahi Hungry for More Cable, Telecom Deals
Absorbing SFR, Franco-Israeli Investor Aims to Play a Deeper Role in European Consolidation
"I have ambitious dreams," Patrick Drahi, executive chairman of Altice, said in his first interview since winning the bidding for SFR. Bloomberg News
When Franco-Israeli cable investor Patrick Drahi first approached Vivendi SA VIV.FR +0.08% to buy the conglomerate's French mobile operator, he was met with amused incredulity.
"Are you out of your mind?" asked Vivendi Chairman Jean-René Fourtou, noting that Mr. Drahi didn't have the money, according to people familiar with the November 2012 meeting. "You're punching above your weight."
Less than two years later, Mr. Drahi swooped in with a staggering package of loans and junk bonds to buy Vivendi's mobile firm SFR for €17 billion ($23 billion) in cash and stock, upending a coordinated effort by the French establishment to consolidate the country's mobile sector.
Now, ahead of what investors, bankers and telecommunications executives expect to be a tsunami of European telecom consolidation led by giants like Telefónica SA TEF.MC +0.86% and Vodafone Group VOD.LN -0.54% PLC, the Moroccan-born Mr. Drahi is again positioning himself to play the unlikely spoiler—this time on a European level.
"I have ambitious dreams," Mr. Drahi, executive chairman of Altice SA, ATC.AE -0.09% said in his first interview since winning the bidding for SFR. "There is a big game to play in the consolidation of the European telecom market in which we could play a role."
Mr. Drahi's European push comes as companies have started a series of mergers that could help unify Europe's fragmented telecom market. So far this year, there have been nearly $65 billion in European telecom deals, the most since 2000, according to Dealogic. Despite some resistance from European antitrust regulators, analysts and investment bankers expect more deals to come.
It won't come easy: Mr. Drahi's Luxembourg-based company Altice and French unit Numericable Group SA NUM.FR +2.71% will be heavily indebted once the SFR deal closes. The 50-year-old will also have to navigate between promises to preserve jobs in France and cutting costs to make the business more profitable in a market where operators have suffered from stiff competition.
He will also face big competitors. Mr. Drahi's plan is to buy more cable and mobile companies in markets where he is already present, including Belgium, Portugal and Israel—but also in other parts of Europe, citing Germany as a possibility. And farther away, he is looking at assets in Central and South America, he said. But companies like Vodafone and John Malone's Liberty Global PLC are making similar bets that customers increasingly want so-called quadruple-play offers that bundle together broadband, mobile, fixed-line and TV services.
"Mr. Drahi would be going up against some big fish," said Javier Borrachero, head of telecom research at Kepler Cheuvreux. "But with companies that are a one-man show, one never knows."
A self-made billionaire who started out two decades ago selling cable subscriptions door-to-door, Mr. Drahi said he has one rule: "Always start with cable."
The son of math teachers, Mr. Drahi attended some of France's top engineering schools, including École Polytechnique. But he shunned the more traditional route, followed by many of his classmates, of going on to work for big French companies or government ministers.
At the end of a summer internship doing maintenance work for French railway operator SNCF, the then-20-year-old Mr. Drahi told his supervisor: "I will never work here, I want to do my own thing," recalls Olivier Huart, CEO of broadcasting company TDF Group and Mr. Drahi's former classmate.
"Patrick doesn't have any inhibitions—when he wants something, he says it and does it," Mr. Huart said.
Inspired by Mr. Malone, the U.S. cable magnate, Mr. Drahi began by buying up a concession for a small cable network in southern France in the 1990s. After a stint working for a predecessor of Mr. Malone's Liberty Global, Mr. Drahi cashed out—and used the money to buy more cable. By 2004, Mr. Drahi had found private-equity backers to help him eventually consolidate all of France's cable operators under the name Numericable.
He decided to push further. Mr. Drahi met with Vivendi's SFR, Bouygues SA EN.FR +0.86% 's Bouygues Telecom and upstart Iliad SA, ILD.FR +0.61% toying with the idea of a tie-up or partial sale, according to people familiar with the matter. None was willing.
So Mr. Drahi pursued in Israel what he had at the time failed to do in France. In 2009, he bought into Israeli cable company Hot and later merged it with a local mobile operator, testing what he intends to do in France provided France's competition regulators approve the merger of Numericable and SFR.
After the 2012 meeting with Mr. Fourtou, Mr. Drahi knew he had to return to Vivendi's negotiating table with more financial firepower. He began with initial public offerings in 2013 and early 2014 of Altice and Numericable in Amsterdam and Paris—netting €2 billion. Mr. Drahi then arranged $22 billion of euro- and dollar-denominated junk bonds and loans to finance his bid.
Mr. Drahi said Altice will probably have to wait around two years before doing another "big" acquisition as the immediate priority is to focus on integrating the French business. But he doesn't see his group's debt as an impediment to more deals. "It's not debt that keeps me up at night, it is cash that serves no purpose," said Mr. Drahi, during one of his regular trips to Tel Aviv.
Labeled an outsider during the fight for SFR, Mr. Drahi doesn't mingle with French officials in exclusive clubs, according to people close to him. He prefers dinners at home in Geneva or Tel Aviv with his wife, to whom he has been married for almost 25 years. But since his victory in the bidding for SFR, there are signs he has risen within the French establishment.
"Drahi impressed me," said Henri Lachmann, a Vivendi board member who steered the board committee overseeing the SFR sale earlier this year. "He is a carnivore who throws himself on his targets."
The executive is also taking steps to play along. Mr. Drahi recently met with French President François Hollande, according to people familiar with the matter. A spokeswoman for the presidency wasn't able to comment. And after donating €10 million to French elite telecom schools, he is considering investing in a French newspaper, a move that has practically become a rite of passage for French businessmen.
"Over the past few months, I think we took some people by surprise," Mr. Drahi said, adding with a chuckle: "Now, things are more serious."