In a surprise deal, Internet giant Yahoo has settled with billionaire investor Carl Icahn, preventing what could have been a hostile takeover of the company's board of directors during an August 1 shareholders meeting. Under terms of the deal, Yahoo is giving Icahn and two of his cronies three seats on the Yahoo board. More to the point, Icahn's alliance with Microsoft--which had been seeking to buy all or part of Yahoo--appears to be at an end.

"I am happy that the board has agreed in the settlement agreement that any meaningful transaction, including the strategy in dealing with that transaction, will be fully discussed with the entire board before any final decision is made," Icahn said. The billionaire
owns about 5 percent of Yahoo and described the settlement as a "good outcome" for the company.

Icahn still believes that a full or partial sale of Yahoo is in the best interests for shareholders and said he will push the company to do so. In order to accommodate Icahn and his two as-yet-unnamed board appointees, Yahoo will expand its board from 9 to 11 members. One existing board member, Robert Kotick, will step down. Oft-criticized CEO Jerry Yang remains on the board.

"This agreement will not only allow Yahoo to put the distraction of the proxy contest behind us, it will allow the company to continue pursuing its strategy of being the starting point for Internet users and a must buy for advertisers," Yang said. "No other company in the Internet space has our unique combination of global brand, talented employees, innovative technologies and exceptional assets, attributes that will help us take advantage of the large and growing opportunity ahead of us. I look forward to working together with our new colleagues on the board to make that happen."