SAN FRANCISCO - Yahoo Inc. averted a showdown with rabble-rousing investor Carl C. Icahn yesterday by giving him three seats on its board of directors in a truce that leaves the door open for a possible sale of the company to Microsoft Corp.
The compromise spares Yahoo from more bickering with Icahn, an acerbic billionaire who spent the past two months spearheading a rebellion to replace the Internet company's entire board. His effort was retaliation for Yahoo's rejection of Microsoft's $47.5 billion takeover bid in May.
The duel had been scheduled to culminate in a shareholder vote at Yahoo's Aug. 1 annual meeting.
It now appears there will be fewer fireworks at that gathering, although some Yahoo shareholders are still expected to vent about the board's inability to get a deal done with Microsoft after six months of wrangling.
The main order of business at the shareholder meeting will be the cease-fire giving Icahn three of the 11 seats on Yahoo's board. The board will be expanded by two members to make the arrangement possible.
Eight of Yahoo's current nine directors will be retained, leaving the company's current regime - headed by chairman Roy Bostock and chief executive officer Jerry Yang - in the driver's seat.
Robert Kotick, the chief executive of video game maker Activision Blizzard Inc. and a Yahoo director for the past five years, will surrender his seat as part of the agreement. His seat and the two new seats will go to Icahn nominees.
The compromise 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 be the best way for the Sunnyvale, Calif., company to lift its sagging stock price.
With more than $1.5 billion invested in Yahoo, Icahn isn't likely to be satisfied 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 78 cents, or 3.5 percent, yesterday to $21.67 - well below the $33 a share that Microsoft dangled in early May before withdrawing the bid because Yang sought $37 per share.
Microsoft didn't respond to requests for comment yesterday, but has previously indicated it remains interested in exploring a deal with Yahoo, especially if the negotiations were handled by a new board.
Standard and Poor's Internet analyst Scott Kessler said the agreement is a sign the current board realizes it needs to shake things up even more than Yang has done since he became chief executive 13 months ago.