Yahoo Inc. is relinquishing three seats on its board of directors to activist investor Carl Icahn, ending a battle for control of the Internet company while still leaving the door open for a possible sale to Microsoft Corp.
The truce announced Monday gives Yahoo a reprieve from two months of bickering with Icahn, who had been spearheading a shareholder rebellion aimed at replacing the company's entire board in retaliation for its rejection of Microsoft's $47.5 billion takeover bid in early May.
The showdown had been scheduled to culminate in a shareholder vote at Yahoo's Aug. 1 annual meeting.
That gathering now looks like it will be a largely perfunctory affair to ratify a cease-fire that will give Icahn three of the 11 seats on Yahoo's expanded board.
Eight of Yahoo's current nine directors will remain on the board, leaving the company's current regime — headed by Chairman Roy Bostock and Chief Executive Jerry Yang — in the driver's seat.
Robert Kotick, the CEO of video game maker Activision Inc. and a Yahoo director for the past five years, will surrender his seat as part of the agreement.
But the compromise negotiated over the weekend doesn't necessarily settle Yahoo's fate, which has been unclear since Microsoft made its first unsolicited offer in January.
Icahn, who owns a 5 percent stake in Yahoo, emphasized he still believes a sale of all or part of Yahoo may still be the best way for the Sunnyvale, Calif.-based company to lift its sagging stock price. And with more than $1.5 billion invested in Yahoo, Icahn isn't likely to be content with the status quo. He paid an average of about $25 per share for his Yahoo holdings, meaning he will sustain a loss unless the company's stock perks up.
Yahoo shares fell 61 cents to $21.84 in Monday's late morning trading — a far cry from the $33 a share that Microsoft CEO Steve Ballmer dangled in early May before withdrawing the bid after Yang sought $37 per share.
Icahn's involvement on corporate boards haven't always yielded big returns. For instance, he won three board seats at Blockbuster Inc. in May 2005 and, since then, the movie rental chain's stock price has plunged by about 75 percent.
After spending weeks ridiculing Yang and the rest of Yahoo's board, Icahn apparently realized he had little hope of prevailing in this campaign.
Things began to unravel July 12 when Yahoo rejected Microsoft's latest proposal to buy its online search operations in a complex deal put together in concert with Icahn.
Then, on Friday, Legg Mason Capital Management Inc. became the first major Yahoo shareholder to publicly declare its support for the current board. Legg Mason, which controls 4.4 percent of Yahoo shares, also encouraged Yahoo and Icahn to negotiate a compromise, helping to expedite talks between the two sides.
Yahoo's new board may include a possible successor to Yang, whom Icahn had threatened to fire if his attempted coup had been successful.
Besides taking a board seat himself, Icahn will be able to recommend two other directors who must also be accepted by Yahoo's nominating committee.
To fill those spots, Icahn will choose from the eight men he had already nominated and one new candidate — Jonathan Miller, the former CEO of Yahoo rival AOL. Miller is the kind of seasoned CEO that Icahn envisioned for Yahoo.
But throwing Miller into the mix of Yahoo's new directors was Yang's idea, according to a person familiar with the discussions who asked not to be identified because the talks were considered confidential.
While sparring with Icahn and Microsoft, Yang had also been talking to Miller — a partner at the technology investment firm Velocity Interactive Group — and decided he would be a valuable addition to the board, this person said.
Icahn didn't return a call seeking comment Monday.
Yang, who founded Yahoo at Stanford University in 1994, has been trying to steer a turnaround since he became the company's CEO 13 months ago. He believes Yahoo can dramatically accelerate its revenue growth during the next two years by extending the reach of its ad network and relying on Internet search leader Google Inc. to sell some of the ads on its own Web site.
Even so, Yahoo's board has said it remains open to reviving sales negotiations with Microsoft. Microsoft didn't respond to a request for comment Monday.
