Investor Icahn gets 3 board seats in Yahoo deal

SAN FRANCISCO -- Yahoo yhoo averted a shareholder showdown with Carl Icahn on Monday. The Internet icon agreed to relinquish three seats on its board of directors to the activist investor, who dropped his threat of waging a proxy fight.

Yahoo's nine-member board will expand to 11, and current director Robert Kotick, CEO of video-game maker Activision, will surrender his seat. Icahn, 72, will join the board. Two more seats will be filled from a list of nine candidates recommended by Icahn. One of the candidates is Jonathan Miller, former CEO of rival AOL.

Yahoo's board will continue to be headed by Chairman Roy Bostock and CEO Jerry Yang.

They, and Icahn, had no comment.

The compromise ends two months of bickering with Icahn, who led a shareholder revolt to replace the board after Yahoo rejected Microsoft's $47.5 billion takeover bid.

Icahn had trashed Yang and the rest of Yahoo's board, but Yahoo last week scored a key endorsement from a major shareholder. Legg Mason Capital Management, which controls 4.4% of Yahoo shares, became the first major shareholder to publicly support the current board. Legg Mason encouraged Yahoo and Icahn to negotiate a compromise.

Most tech analysts, meanwhile, had contended the board would be re-elected because Microsoft and Icahn did not have a coherent plan if they were to take over. Sanford C. Bernstein analyst Jeffrey Lindsay predicted Yang and the Yahoo board would survive the showdown but be replaced months later.

"Inviting the fox into the henhouse is rarely a comfortable place for the hen," AMR Research analyst Jonathan Yarmissays, alluding to Icahn joining Yahoo's board.

The truce still leaves the door open for a possible sale of Yahoo to Microsoft. Icahn, who owns a 5% stake in Yahoo, has steadfastly said he believes a sale of all or part of Yahoo may still be the best way for the company to prop up its sagging stock price and compete with Google for online ads.

Yahoo's board has also said it remains open to rekindling talks with Microsoft. Microsoft had no comment Monday. Yahoo shares stumbled 3.5% to $21.67 in trading Monday, far below the $33 a share Microsoft CEO Steve Ballmer dangled in early May.

The accord signals temporary relief for Yahoo's board, which braced for a showdown at its annual shareholder meeting Aug. 1 in San Jose.