Yahoo Inc (YHOO.O) on Wednesday agreed to add four new independent directors to its board, bowing to pressure from activist hedge fund Starboard Value LP and averting a proxy fight ahead of its upcoming annual meeting.
Yahoo said Starboard Chief Executive Jeffrey Smith and three other directors will join the board immediately. Smith and the three directors were on the slate Starboard proposed last month to overthrow Yahoo's entire board if a deal between the two sides failed before the annual meeting.
Smith, in a critical part of the agreement, is also joining Yahoo's strategic review committee, which is overseeing the company's sale of its core business. Smith has said he does not trust Yahoo's board and management team with handling the sales process, given past missteps.
Yahoo said in a statement that two incumbent directors would step down at the annual meeting, but did not name the individuals. With the addition of the four new directors, Yahoo's board will have 11 members.
Yahoo has not set a formal date for its annual meeting, but historically it is held in late June
Yahoo's agreement with Starboard means the company can now put the prospect of a costly and distracting proxy fight behind it, and focus on the sale of its core search business, which is fielding bids from potential buyers.
"This constructive resolution will allow management and the board to keep our focus on our extremely important objectives," Yahoo CEO Marissa Mayer said in the statement.
The agreement indicated Yahoo shareholders were advocating for the company to settle, while Starboard was willing to give up the challenging prospect of a full board takeover for four director seats inside the company, including a seat on the strategic review committee.
Starboard, which owns about 1.7 percent of the company, has been pushing for changes at Yahoo since 2014. The activist hedge fund took aim at the company's leadership in a January letter, implying that Mayer and top officials needed to go.
Starboard backed up its threat of launching a proxy contest, proposing last month a nine-member director slate to overthrow Yahoo's board. While a full board victory is rare in shareholder activism, Starboard won its standoff with Darden Restaurants Inc (DRI.N), convincing shareholders to replace all board directors of the Olive Garden parent.
The three other directors to join Yahoo's board are Tor Braham, Eddy Hartenstein and Richard Hill, part of Starboard's proposed slate which it will now withdraw.
Reuters reported on April 19 that Verizon Communications Inc (VZ.N) was set to advance to the second stage of bidding for Yahoo's core assets. Verizon has signaled its interest in the auction, though its bid is expected to compete against other companies and private equity firms.
Softbank Group Corp (9984.T), which owns 43 percent of Yahoo Japan Corp, and China's Alibaba Group Holding Ltd (BABA.N), in which Yahoo holds a 15.5 percent stake, have not yet participated in the auction, according to the Reuters report.
After shelving plans to spin off its stake in the Chinese e-commerce company, pressure built on Yahoo from Starboard and other shareholders to sell its core business, as efforts to turn around the Internet pioneer struggled under Mayer's leadership.
The price tag Yahoo could reap from the sale is estimated between $3 billion and $5 billion, Reuters has previously reported.
(Additonal reporting by Rishika Sadam in Bengaluru; Editing by Savio D'Souza and Meredith Mazzilli)
RELATED: Photos of Yahoo CEO Marissa Mayer
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Yahoo to add four directors to board in deal with Starboard
Marissa Mayer, president and CEO of Yahoo!, arrives at The Metropolitan Museum of Art's Costume Institute benefit gala celebrating "China: Through the Looking Glass" on Monday, May 4, 2015, in New York. (Photo by Evan Agostini/Invision/AP)
In this Feb. 19, 2015 photo, Yahoo President and CEO Marissa Mayer delivers the keynote address at the first-ever Yahoo Mobile Developer's Conference, in San Francisco. Mayer was the highest paid female CEO in 2014, according to a study carried out by executive compensation data firm Equilar and The Associated Press. (AP Photo/Eric Risberg)
FILE- In this Monday, April 19, 2010 file photo, Google vice president of search products and user experience, Marissa Mayer, attends the 2010 Matrix Awards presented by the New York Women in Communications at the Waldorf-Astoria Hotel in New York. Yahoo announced Monday, July 16, 2012, that it is hiring longtime Google executive Marissa Mayer to be its next CEO, the fifth in five years as the company struggles to rebound from years of financial malaise and internal turmoil. Mayer, who starts at Yahoo Inc. on Tuesday, was one of Googleâs earliest employees and was most recently responsible for its mapping, local and location services. (AP Photo/Evan Agostini)
Marissa Mayer attends the Glamour Magazine 2009 Women of the Year Awards at Carnegie Hall on Monday, Nov. 9, 2009 in New York. (AP Photo/Evan Agostini)
Marissa Mayer, Vice President of Search Products and User Experience at Goggle Inc., speaks about the new Google Earth 5.0 at the California Academy of Sciences in San Francisco, Monday, Feb. 2, 2009. Google Inc. is launching a new version of Google Earth that will let users explore the oceans, view images of Mars and watch the Earth's surface change over time. (AP Photo/Jeff Chiu)
Marissa Mayer, president and chief executive officer of Yahoo! Inc., speaks during the 2015 Fortune Global Forum in San Francisco, California, U.S., on Tuesday, Nov. 3, 2015. The forum gathers Global 500 CEO's and innovators, builders, and technologists from some of the most dynamic, emerging companies all over the world to facilitate relationship building at the highest levels. Photographer: David Paul Morris/Bloomberg via Getty Images
Marissa Mayer, president and chief executive officer at Yahoo! Inc., smiles during the 2015 Bloomberg Technology Conference in San Francisco, California, U.S., on Tuesday, June 16, 2015. Mayer said that the company's spinoff of its stake in Alibaba Group Holding Ltd. is proceeding as planned. Photographer: David Paul Morris/Bloomberg via Getty Images
NEW YORK, NY - MAY 04: Marissa Mayer, President and CEO of Yahoo attends 'China: Through The Looking Glass' Costume Institute Benefit Gala - Press Preview at Metropolitan Museum of Art on May 4, 2015 in New York City. (Photo by Bennett Raglin/WireImage)
NEW YORK, NY - APRIL 27: Yahoo CEO Marissa Mayer attends the 2015 Yahoo Digital Content NewFronts at Avery Fisher Hall on April 27, 2015 in New York City. (Photo by Cindy Ord/Getty Images for Yahoo)
Marissa Mayer, president and chief executive officer at Yahoo! Inc., smiles during a press conference at the Yahoo! Inc. Mobile Developer Conference in San Francisco, California, U.S., on Thursday, Feb. 19, 2015. Mayer unveiled a suite of development tools for mobile applications that integrate its own advertising services with features it acquired with analytics startup Flurry Inc. Photographer: David Paul Morris/Bloomberg via Getty Images
Marissa Mayer, chief executive officer of Yahoo! Inc., listens during a panel session on day four of the World Economic Forum (WEF) in Davos, Switzerland, on Saturday, Jan. 25, 2014. World leaders, influential executives, bankers and policy makers attend the 44th annual meeting of the World Economic Forum in Davos, the five day event runs from Jan. 22-25. Photographer: Jason Alden/Bloomberg via Getty Images
Yahoo CEO Marissa Mayer speaks during her keynote address at the 2014 International CES in Las Vegas, Nevada, January 7, 2014. AFP PHOTO / ROBYN BECK (Photo credit should read ROBYN BECK/AFP/Getty Images)
Marissa Mayer, president and chief executive officer of Yahoo! Inc., reacts during the DreamForce Conference in San Francisco, California, U.S., on Tuesday, Nov. 19, 2013. Yahoo boosted its stock-buyback plan by $5 billion, returning more cash to shareholders as Mayer seeks to revive growth at the largest U.S. Internet portal. Photographer: David Paul Morris/Bloomberg via Getty Images
Marissa Mayer, chief executive officer of Yahoo! Inc., smiles at the TechCrunch Disrupt SF 2013 conference in San Francisco, California, U.S., on Wednesday, Sept. 11, 2013. Yahoo! Mayer said the Web portal has surpassed 800 million active monthly users, a 20 percent increase since she joined the company in July 2012. Photographer: David Paul Morris/Bloomberg via Getty Images
Marissa Mayer, CEO of Yahoo, attends the Cannes Lions 2014, 61st International Advertising Festival in Cannes, southern France, Tuesday, June 17, 2014. The Cannes Lions International Advertising Festival is a world's meeting place for professionals in the communications industry.(AP Photo/Lionel Cironneau)