RATCHETING UP the pressure on Yahoo, a major investor this week urged the internet company to sell its web search business to Microsoft and proposed a price of $15 billion (€11.2 billion).

Ivory Investment Management, a Los Angeles firm that owns 1.5 per cent of Yahoo's shares, said the internet firm and Microsoft needed each other to stand any chance of competing with Google for web search business.

Since combining their search businesses would reduce operating costs and increase profitability, Microsoft could pay more than $15 billion up front for Yahoo's search business and still do well, Ivory Investment managing director Curtis Macnguyen argued in a letter to Yahoo's board.

He said the cash infusion and resulting improved efficiency - plus a Yahoo tender offer that would reduce the number of shares outstanding - could boost the value of the Sunnyvale company's shares to $29, just below the amount that Microsoft originally offered to acquire all of Yahoo.

Neither firm commented, but their chief executives have said a search deal could be beneficial.

Analyst Gene Munster of Piper Jaffray, in a research report, said Ivory's analysis of the operating implications of combining the two search businesses appeared to be sound, but he called the idea of a $15 billion upfront payment from Microsoft "unrealistic".

Yahoo this week was forced to make changes to its severance plan, which would make it easier for the company to be acquired.