To end fight, Yahoo gives activist shareholder Icahn board seats

In a surprise move that could easily push Yahoo's acceptance of Microsoft's takeover bid closer to reality, Yahoo has finally given in to some of the key demands of activist investor Carl Icahn, who's been seeking to oust Yahoo founder and CEO Jerry Yang and Yahoo's entire board in the interests of sealing a Microsoft deal.

To avoid an all out fight with Icahn for control of Yahoo's board of directors, Yahoo has now granted Icahn -- who recently bought five percent of Yahoo's shares -- three seats on its board.

Also under the plan, Yahoo's board of directors will expand from 9 to 11 members. After the search company's annual general meeting (AGM) on August 1, current director Robert Kotick will step down, and Icahn will join the board, together with two new members chosen from a list of nine candidates hand-picked by Icahn.

Even Friday morning, Icahn's attempts to hold more sway at Yahoo still seemed unlikely, when investment firm Legg Mason -- which owns a lot more shares of Yahoo stock than Icahn does-- announced that it would be supporting Yahoo's current management in its efforts to retain the company's existing board structure and management.

Meanwhile, though, Icahn has been lobbying hard among shareholders, asking them in a letter to pledge their shares in favor of a proposal which includes the unseating of Yang -- a CEO who, with support from Yahoo's current board, has stalwartly rejected Microsoft's takeover bid since February, claiming that the amount of money offered "devalues" the company.

Icahn has also been threatening to replace the entire current board with his own slate of candidates, whom he envisions as then selling the search firm to Microsoft.

In March, Yang announced a three-year plan for Yahoo designed to promote profitability for Yahoo -- traditionally ranked number two to Google -- while maintaining independence from Microsoft, which typically lands in third place as a search player.

The following month, Microsoft ostensibly finally withdrew its bid for Yahoo, indicating that it would instead focus more of its attentions on its own LiveSearch arm.

For his part, Icahn has already wielded considerable clout as a shareholder wheeler-dealer at a number of other companies, including Motorola -- where, as majority stockholder, he has successfully influenced that company to split off mobile phones from the rest of its business.