July 21 (Bloomberg) -- Yahoo! Inc. gave three board seats to billionaire activist Carl Icahn, ending his two-month fight for control of the Internet company without changes in management.

Icahn will join the board, which will expand to 11 members, and current director Robert Kotick will leave, Yahoo said today in a statement. The other two seats will be filled from a list of nine candidates backed by Icahn, which now includes former AOL Chief Executive Officer Jonathan Miller.

The agreement is a victory of sorts for Jerry Yang, the Yahoo CEO Icahn sought to oust for rejecting a takeover by Microsoft Corp. The pact leaves Yang in his job while placing a dissident voice for change inside the boardroom. Legg Mason Capital Management Chairman Bill Miller threw his support behind Yang three days ago, undercutting Icahn's bid for control.

``Icahn didn't have the vote,'' Sanford C. Bernstein & Co. analyst Jeff Lindsay said in an interview. ``The large institutional shareholders were more in favor of keeping the current management structure'' at the meeting Aug. 1.

Investors weren't so much impressed by Yahoo officials as they were concerned about the alternative, said New York-based Lindsay, who expects Yahoo shares to perform in line with the market. Shareholders didn't want to sell the search business to Microsoft and leave an ``unknown'' slate of directors running the rest of the company, as Icahn had proposed, he said.

Sunnyvale, California-based Yahoo fell 50 cents, or 2.2 percent, to $21.95 at 10:24 a.m. New York time in Nasdaq Stock Market trading. Microsoft advanced 14 cents to $26.

Pressure

With Icahn as a director, Yang may face more internal pressure to reignite the company's growth or sell to Microsoft. The company's second-quarter results tomorrow may show sales growth of 10 percent to $1.37 billion, excluding revenue passed on to partner sites, according to a Bloomberg survey of analysts. That compares with 11 percent growth a year ago and 14 percent in the first quarter.

Yahoo, which posted eight straight quarters of profit declines before the Microsoft bid, had argued that the earlier offers didn't reflect its value and growth prospects. Icahn has criticized Yang, 39, as a ``technical'' expert who lacks the operational skills to run the company.

``This makes it more likely that these two companies will get together,'' said Larry Haverty, an associate portfolio manager at Gamco Investors Inc. in Rye, New York. ``The tolerance of this continual turnaround at Yahoo not working is going to decrease.'' His firm held Yahoo and Microsoft shares among its $29 billion in assets under management as of March 31.

Legg Mason's Moves

Icahn owns about 5 percent of Yahoo's shares, making him the second-biggest institutional investor, according to data compiled by Bloomberg. Capital Group Cos. is the largest, with units holding approximately 17 percent. Legg Mason, the third-biggest, said last week that it would back Yahoo's current board in an Aug. 1 vote. Miller said he would prefer the two sides forge a deal instead of pursuing a ``disruptive proxy contest.''

Microsoft spokesman Frank Shaw and Icahn representative Susan Gordon didn't immediately respond to calls seeking comment. Yahoo representative Brad Williams declined to comment.

The two sides traded barbs as late as last week, suggesting a deal wasn't likely. Yahoo accused Icahn of trying to ``coerce'' management into a sale and called his plan to split the businesses ``ludicrous,'' and he retaliated by saying Yahoo tried to ``distort, omit and twist events and facts.''

Microsoft, based in Redmond, Washington, first bid to take over all of Yahoo for $31 a share, or about $44.6 billion, six months ago. Yahoo rebuffed that offer and a sweetened bid of $33, prompting Microsoft to abandon its pursuit in May.

Icahn's Strategy

Icahn entered the fray after talks collapsed, saying the two need each other to take on Google Inc., which handles almost three times as many U.S. Internet searches as Yahoo. Spurred by Icahn, Microsoft began trying to buy Yahoo's search business, with Yang rejecting the latest offer less than 10 days ago.

``Icahn clearly is agitating for change at Yahoo -- this guy is a deal person,'' Michael Shinnick, a portfolio manager at First Source Bank in South Bend, Indiana, told Bloomberg Television. ``With him on the board they're going to be much more receptive and reasoned in terms of considering a Microsoft offer.''

This year, the activist investor also pushed mobile-phone maker Motorola Inc. to include him in its board, along with two of his nominees. Motorola announced plans in March to split off its unprofitable mobile-phone business after lobbying from Icahn.

Icahn also successfully pressed for the sale of vaccine developer MedImmune Inc. to AstraZeneca Plc last year for about $15 billion. He also helped BEA Systems Inc. and Oracle Corp. agree to an $8.5 billion takeover.

The investor has earned billions as a corporate raider, including the 1985 takeover of Trans World Airlines Inc. He made $893 million trying to break up RJR Nabisco Holdings Corp. in the 1990s.

To contact the reporters on this story: Amy Thomson in New York at athomson6@bloomberg.net; Crayton Harrison in Dallas at tharrison5@bloomberg.net

Last Updated: July 21, 2008 10:25 EDT