Yeah, this has been an On again Off again type of relationship for many years. It was back in 2005/2006 when the deal was first put on the table, and refused as yahoo was doing their own engine, then decided Google would be a better fit for the self service advertising market (google adwords). A couple of years ago, Microsoft made a bid to purchase Yahoo and then took the deal off the table. In mid 2009, Yahoo said it was looking to partner again and signed a 10 year deal with Microsoft (at which time was developing Bing). It was approved by the Department of Justice and the European groups in 2010 but from my understanding it's not supposed to take full effect until 2012 or later before everything is said and done.
Why should it be shocking? There are many mergers going on in ecommerce industry off and on. However may be cause its a merger between two competitors which is so shocking. I wonder what opportunities it has for these giants and for the users.