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Yahoo’s most vocal critic is now on its board

Yahoo CEO Marissa Mayer has struck a deal with Starboard, a New York hedge fund that has been pressing for change at the tech giant./ AFP PHOTO / ROBYN BECKROBYN BECK/AFP/Getty Images

Yahoo on Wednesday announced a deal that should end a nearly year-long tussle with a New York hedge fund that had threatened to unseat its entire board.

Starboard Value has been a vocal critic of the tech giant, which has struggled to profit from its massive online audience. Last month, Starboard called for Yahoo's entire board of directors--including Marissa Mayer, Yahoo's chief executive, and H. Lee Scott, the former president of Wal-Mart--to be replaced. The hedge fund submitted a slate of hand-picked board members to stand for election on during Yahoo's next shareholder meeting.

Instead, Yahoo said Wednesday it will add four board members chosen by Starboard, including the hedge fund's founder, Jeff Smith. They will join the board immediately.

"This constructive resolution will allow management and the board to keep our focus on our extremely important objectives," Mayer said in a statement.

Those board seats will give Starboard even more influence at Yahoo. Under pressure from Starboard and other investors, Yahoo abandoned a plan late last year to spin off its interest in Chinese retailing giant Alibaba. The potential multibillion-dollar tax bill from such a deal would be too costly, investors argued.

Now, Yahoo is selling its iconic search engine and email service, but Starboard has not been satisfied with the pace of the process and grew increasingly frustrated.

As part of the deal, Smith will join Yahoo's strategic review committee of the board that is weighing bids for the company's assets.

"I am pleased that we were able to reach a constructive agreement with Yahoo to add new independent directors to the Yahoo Board," Smith said in a statement. "We look forward to getting started right away and working closely with management and our fellow board members with the common goal of maximizing value for all shareholders."