Investors say battle with Microsoft not over

Yahoo bought some breathing space yesterday in its long struggle to remain independent, agreeing a ceasefire with Carl Icahn in return for giving up three board seats to the activist investor.

However, some investors and analysts warned that the pact would not end the bruising battle with Microsoft that has transfixed the consumer internet business for much of this year.

Yahoo rebuffed Microsoft's most recent overture little more than a week ago, after failing to agree terms for an acquisition by the software company earlier this year. An eventual deal with Microsoft was still likely, these people said.

Mr Icahn, who had proposed replacing Yahoo's nine-member board with his choice of directors at the annual meeting on August 1, agreed to abandon his fight in return for a seat for himself on Yahoo's board, plus the right to propose two other directors.

The agreement will force Yahoo's directors to work closely with a critic who has called repeatedly for the removal of Jerry Yang, chief executive.

Yahoo has been fierce in its criticism of Mr Icahn, one of its biggest shareholders with a 4.98 per cent stake, pointing to his self-declared lack of knowledge about the internet business.

Mr Icahn proposed Jonathan Miller, a former head of rival internet service AOL, as one of his nominees. Youssef Squali, an analyst at Jefferies, the investment bank, said the former AOL executive would act as Mr Icahn's "insurance policy" and be ready to step in to run the company if Mr Yang failed to revive its fortunes.

A compromise with Mr Icahn had seemed increasingly likely as his bid to tap into shareholder anger at the company's failure to reach a deal with Microsoft faded. "I'm shocked they gave him anything," said one Yahoo shareholder, adding it had become clear that Mr Icahn was facing defeat at next week's shareholder meeting.

Icahn calls truce, Page 23 www.ft.com/lex www.ft.com/usdailyview www.ft.com/yahoo

Credit: By Richard Waters and Chris Nuttall in San Francisco