From what has been made apparent, TAP Portugal & VARIG Brasil, will not be merging, but instead TAP, now a very profitable national flag carrier, will be using some of their spare resources & funds to invest in VARIG. Rather than a merger, TAP will have a shareholding in VARIG & the two airlines will codeshare across each other's networks.
It does make sense. TAP's management have really turned the airline around, which VARIG really needs & the two airlines already have a strong cooperation on routes between Portugal/Brazil and through the Star Alliance.