A report that Microsoft and Yahoo! talk merger again on the NY Post sent Yahoo! stock up 17% in pre-trading.

Apparently Microsoft asked Yahoo! to enter formal negotiations.
Yahoo has 12,000 employees and before today had a market value of $32 billion. The streets estimate are that Microsoft would have to pay $50 billion for Yahoo!. If a Microsoft Yahoo! could challenge the search engine dominance of Google is not a sure bet. If you just add the search traffic of Live.com and Yahoo.com it is still not matching by a long shot on what the Google search traffic is.
There is also lots of overlap on what Yahoo! and Microsoft are offering on the web: email, search, portal, video, photo, IM, etc. It would be not easy to create something bigger than just adding them up.
Via this NY Post article. Analysis on the WSJ (subscription).