SAN FRANCISCO - Yahoo Inc. averted a showdown with investor Carl Icahn yesterday by giving him three seats on its board of directors in a truce that still leaves the door open for a possible sale to Microsoft Corp.
The compromise spares Yahoo from more bickering with Icahn, who spent the past two months spearheading a rebellion to replace the Internet company's entire board in retaliation for its 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.
The main order of business will be the cease-fire giving Icahn three of the 11 seats on Yahoo's board, which will be expanded to make the deal 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 Jerry Yang - in the driver's seat.
Robert Kotick, the chief executive of video game maker Activision Blizzard Inc. and a Yahoo director for five years, will surrender his seat. But the compromise, negotiated over the weekend, doesn't necessarily settle Yahoo's fate.
Icahn 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 stock price.
And 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 stock perks up.
Microsoft didn't respond to requests for comment yesterday.
Standard and Poor's Internet analyst Scott Kessler doubts Microsoft will buy Yahoo, but interpreted the Icahn agreement as a sign that the current board realizes it needs to shake things up more.
Shareholder angst could intensify if Yahoo's second-quarter earnings, due today, disappoint Wall Street.