I doubt Microsoft would go ahead and merge with another company like Yahoo! as Microsoft seems more interested in simply buying other companies which are much smaller and have decent products which may not be so well known.
Then they just bolt the Microsoft logo over the old logo and charge people £200 to use it.
It's kind of like what Google does, but Google just puts "powered by Google" somewhere instead of changing the name and pretending it's a new product.
Yahoo! is trying to branch out like Google has (though in Google's case, "spreading like some kind of constantly mutating virus" would be a better description), but to a lesser extent.
I wouldn't be surprised by a joint venture between Microsoft and Yahoo!, but a full blown merger just doesn't seem like something that'll happen any time soon.
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