One of Yahoo!'s biggest investors this week demanded that the company sell its Internet search unit to Microsoft. Ivory Investment Management LP, which owns 21.4 million Yahoo! shares, says that such a move could double the value of Yahoo!.

"We believe a search deal with Microsoft could deliver value to Yahoo shareholders of $24-29 per share, or more than double yesterday's closing price of $12.19," a letter from Ivory managing partner Curtis Macnguyen wrote in a letter to the Yahoo! board of directors. "We envision a deal whereby Microsoft would acquire all of Yahoo's search assets and enter into a perpetual agreement for Microsoft to be the search provider for all Yahoo properties."

Ivory believes Yahoo! could get an upfront payment of over $15 billion from Microsoft and then retain about 80 percent of the search revenue generated through Yahoo!'s Web sites going forward. By its estimates, the deal would raise Yahoo!'s value by more than $500 million a year, and Microsoft and Yahoo! would save a combined $800 million a year by consolidating their search efforts.

Neither Microsoft nor Yahoo! commented on the proposal. But Microsoft CEO Steve Ballmer said as recently as last weekend that he was still interested in a deal for Yahoo!'s search business.

"This deal would offer Microsoft the unique opportunity to immediately gain critical mass to better level the playing field with Google, while it would simultaneously allow Yahoo to both receive a sizable upfront cash payment and increase its prospective cash flow," the letter from Ivory concludes.