Oi & Portugal Telecom to Team?

According to the Brazilian papers, Oi Participacoes (TNE - Analyst Report) and Portugal Telecom (PT - Snapshot Report) have been talking about some kind of cooperation. It is not clear what would be implemented, but we have some guesses:

After the acquisition of Brasil Telecom (BRP - Analyst Report), Oi Participacoes is now a wireline monopoly in Brazil, with a huge presence in the fast-growing wireless market, and we believe it is time for the company to pursue geographical diversification.

On the other side, Portugal Telecom needs diversification; its operation in Portugal is mature and cannot expand.  Portugal Telecom has a 50% stake in control of Vivo (VIV - Snapshot Report) together with Spanish Telefonica (TEF - Analyst Report), though we have been saying for quite some time that we believe Telefonica will acquire PT's share on Vivo -- they have been pressuring for this in the last two years.

The deal with Oi Participacoes could be a good way for PT to continue its international expansion, now that the deal with Spanish Telefonica does not seem so perfect anymore.

We are positive on the Brazilian wireless market. The international expansion of Oi Participacoes is also positive. We are keeping our Buy recommendation on Vivo. Since first quarter results for both Oi Participacoes and Brasil Telecom were disappointing, we are keeping our neutral view on TNE and BRP.