Microsoft offers Yahoo 44.6 billion dollar! If you can't beat the top dog in the business, it means you don't have the right product. Neither does the competition! So what big difference does it make to team up with the company that has the same problem as oneself? Best example is Ericsson who tried to get closer to Nokia by merging with Sony's handset business. It's the same situation with Nokia. Nothing seems to stop this company! Ericsson tried to get closer to Nokia by merging with Sony but it didn't make a difference!
Google can't bid for Yahoo anyway. That would be another antitrust case and GOOG would lose that one due to it's massive market share in the search business.