Yahoo settles with Icahn to avert August showdown

After spending weeks ridiculing Yang and the rest of Yahoo's board, Icahn apparently realized he had little hope of gaining control of the company.

Things began to unravel July 12 when Yahoo rejected Microsoft's latest proposal to buy its online search operations in a complex deal assembled in concert with Icahn.

Then, on Friday, Legg Mason Capital Management Inc. became the first major Yahoo shareholder to publicly declare its support for the incumbent board. Legg Mason, which controls 4.4 percent of Yahoo shares, also encouraged Yahoo and Icahn to negotiate a compromise.

Yahoo's new board may include a possible successor to Yang, whom Icahn had threatened to fire if his attempted coup had been successful.

Besides taking a board seat himself, Icahn will be able to recommend two other directors who must also be accepted by Yahoo's nominating committee.

To fill those spots, Icahn will choose from the eight men he had already nominated and one new candidate--Jonathan Miller, the former CEO of Yahoo rival AOL. Miller is the kind of seasoned CEO that Icahn envisioned for Yahoo.

But throwing Miller into the mix of Yahoo's new directors was Yang's idea, according to a person familiar with the discussions who asked not to be identified because the talks were considered confidential.

While sparring with Icahn and Microsoft, Yang had also been talking to Miller--a partner at the technology investment firm Velocity Interactive Group--and decided he would be a valuable addition to the board, this person said.

Icahn didn't return a call seeking comment Monday.

Yang, who co-founded Yahoo at Stanford University in 1994, has been trying to steer a turnaround. He believes Yahoo can dramatically accelerate its revenue growth in the next two years by extending the reach of its ad network and relying on Google's superior technology to sell some ads for Yahoo's site.