UPDATE 3-Brazil's Oi to buy Brasil Telecom for $3.5 bln

(Adds Oi CEO comments, takeover financing)

By Todd Benson

SAO PAULO, April 25 (Reuters) - Brazil's Oi Participacoes (TNE.N: Quote, Profile, Research, Stock Buzz) said on Friday it agreed to buy control of local rival Brasil Telecom (BRTP4.SA: Quote, Profile, Research, Stock Buzz) for 5.86 billion reais ($3.5 billion), forging a home-grown telecoms giant to compete with Spain's Telefonica (TEF.MC: Quote, Profile, Research, Stock Buzz) and Mexico's America Movil (AMXL.MX: Quote, Profile, Research, Stock Buzz).

The total price tag for the takeover may rise to 12.3 billion reais, taking into consideration an offer for Brasil Telecom's minority shareholders, Oi Chief Executive Luiz Eduardo Falco said. Oi has enough cash at hand to pay for the purchase, but it may also tap the capital markets to raise part of the funds, he said.

The deal, widely expected for months, still depends on changes to Brazil's regulatory framework, which forbids one group from holding two separate telecoms concessions.

But Brazil's government has signaled it is in favor of changing the legislation to allow for some consolidation in the country's fiercely competitive telecoms sector, which was opened to private investment a decade ago.

A proposal to overhaul the legislation and allow for the Brasil Telecom takeover is making its way through the Communications Ministry, after which it will be sent to the country's telecoms regulator for final approval.

If the deal is approved, it would create a Brazilian player large enough to compete on a regional basis with the likes of Telefonica and America Movil (AMX.N: Quote, Profile, Research, Stock Buzz), both of which have a major presence throughout Latin America.

"This is a company that is born with ambitions that go beyond Brazil," Falco said at a press conference in Rio de Janeiro. "We have international dreams."