Senh: Google did get their start with Yahoo when the web directory used it as their third-party search engine. Yahoo is mainly a content company nowadays, but they're still the second largest search engine in the search market. Owning Yahoo and replacing Bing, which Yahoo currently uses for search, with their own search engine would make Google even more dominant in search. It's insurance against Bing (Microsoft). Expect a bidding war between Google and Microsoft.
Senh: I could see how this could work, but like what everyone else said - how can two sinking ships float? If each of them can't make this work individually, how can they make it work together. It would be better if Yahoo just buy AOL's star properties individually (Techcrunch and other tech sites) and leave the rest (Huffington Post). Merging the two will just sink both companies.