The story itself could be a "trial balloon" too see the reaction of the investment and shareholder community.
I bet it is likely. IMO the two companies will merge but each will retain their independence to a degree, keeping both names in tact.
I personally don't like such mergers, the bigger companies become the less agile, efficient, and innovative the become. IF I was M$ I wouldn't do this. If anything M$ needs to become a smaller organization and reconnect with their roots if they want to remain competitive and viable. MS also needs to get rid of that jerk Ballmer, and replace him with a young innovative type like the founders were. I'd love to hear who somebody like Bill Gates or Paul Allen would choose to run M$ today.