Yahoo and Microsoft compete in most of the divisions. Namely search, sports, news, video, mail, chat and advertising. Probably, the news & media part of Yahoo is the only thing better than Microsoft at this point; Even, that I don't see remaining as such for long time with MSN coping up well.

So, if Microsoft would have acquired Yahoo they would have surplus of divisions and similarly talented people & infrastructure; Which would eventually lead to more layoffs and more time wasted consolidating teams, infra, design and resources.