Microsoft and Yahoo have been rivals in Internet search for years. While Microsoft has grown and maintained its profitability, Yahoo has seen a drop in stock prices and a loss in market share.

DailyTech reported in February 2008 that Microsoft made an unsolicited offer of $44.6 billion to purchase Yahoo. The $44.6 billion offer placed a premium of 62% on Yahoo stock breaking down to about $31 per share.

Yahoo’s board rejected the Microsoft offer saying that it undervalued the company. After Yahoo rejected the offer, Microsoft moved ahead with plans of a hostile takeover of Yahoo. The takeover made some employees within both Microsoft and Yahoo fearful for their jobs since an overlap of positions would be expected if the merger happens.

Reuters is reporting that Microsoft president of platforms and services division, Kevin Johnson, sent an email to employees in his unit saying that Microsoft will dedicate “significant rewards and compensation” to retain both Microsoft and Yahoo employees. According to Johnson, “While some overlap is expected in any combination of this size, we should remember that Microsoft ... has hired over 20,000 people since 2005, and we would look to place talented employees throughout the company as a whole. We have no shortage of business and technical opportunities, and we need great people to focus on them."

Yahoo issued a statement earlier this week that it put generous severance packages in place for any employees that might lose their jobs if the company was sold. The chance of Yahoo being sold must be increasing considerably for Yahoo to admit that such severance packages were in place already.

Reuters also reports that two pension funds have independently sued Yahoo and its board of directors for refusing Microsoft’s offer. According to the suit, Yahoo is pursuing other possible deals that are not as beneficial to shareholders as the Microsoft offer.