Pepe has been a quiet bright spot among European defenders this past season. If I were to pick the top defenders in the Portuguese SuperLiga this season, he'd come around third, following Anderson and Luisão (both from Benfica, and all three coincidentally Brazilian) and ahead of Sporting's Tonel.
The thing to note about Pepe is that Porto plays with only three fullbacks. The guy is incredibly fast -- some say perhaps the fastest defender in the world -- as he often helps make it look like there are four defenders back there. But he's quite young and capable of bone-headed errors that young players make.
There's a lot of potential there -- and given his age, this makes me think this is just a story without substance or, at best, he'll be acquired to be loaned out.