Yahoo will appoint activist investor Carl Icahn and two members of his slate of directors to the company's board, settling a proxy battle ahead of its August 1st annual shareholders meeting.
Icahn had sought to replace the entire board with his own nominees, seeking to oust Yahoo chief executive Jerry Yang and restart negotiations with Microsoft Corp to buy a part or all of
the Internet company.
Yahoo shares fell 2 per cent to $22.0 from $22.45 in pre-market trading.
Yahoo said on Monday it will expand its board to 11 members from nine, with eight of its existing directors standing for re-election.
Mr Icahn will be appointed and the remaining two board seats will be chosen from a list that includes Icahn's original slate of candidates and Jonathan Miller, former chairman and CEO of Time Warner's AOL, Yahoo said.
Mr Icahn, who owns 4.98 per cent of Yahoo, has agreed to vote his shares in support of the Yahoo board's nominees as part of the settlement, Yahoo said in a statement.
The billionaire investor said in the statement that this was a "good outcome" and he continued to believe a transaction to sell Yahoo or its search business should be given full consideration.
"I am happy that the board has agreed in the settlement agreement that any meaningful transaction, including the strategy in dealing with that transaction, will be fully discussed with the entire board before any final decision is made," Mr Icahn said.
Yahoo said Roy Bostock, Ronald Burkle, Eric Hippeau, Vyomesh Joshi, Arthur Kern, Mary Agnes Wilderotter, Gary Wilson and Jerry Yang would stand for re-election. Activision Blizzard CEO Robert Kotick will not.
"This agreement will not only allow Yahoo to put the distraction of the proxy contest behind us, it will allow the Company to continue pursuing its strategy of being the starting point for Internet users and a must buy for advertisers," Mr Yang said in the statement.