An acrimonious proxy fight between Yahoo management and Carl Icahn came to an abrupt end Monday with a deal to cede three seats on an expanded 11-member board to the activist investor.

The agreement comes three days after mutual fund manager Bill Miller sided with the Yahoo board in a proxy showdown that would have climaxed at the annual shareholder meeting August 1.

Shareholders gave the deal a chilly reception, driving down Yahoo shares $0.63, or 2.8 percent, to $21.82 in late-morning trading, one day before the company is scheduled to announce second-quarter earnings.

In a research note, UBS analyst Benjamin Schachter (no relation to the reporter) said that the agreement would remove a distraction from the Internet company and allow it to speak with one voice in any future negotiations with Microsoft.

“Although there appeared to be uncertain support for Icahn’s full director slate, the [Yahoo] board was clearly not willing to take its chances and moved to settle,” he said. “With the proxy battle behind them and a unified voice in any future communications with [Microsoft) and potentially others, today’s announcement will enable more focus on operational execution, while still being open to possible transactions.”

Mr. Icahn, who holds about 5 percent of Yahoo shares, had accused Yahoo’s board, and Chief Executive Jerry Yang, of fumbling negotiations with Microsoft, which went public February 1 with a $31 per share bid to buy the company. Though Microsoft later sweetened its offer to $33 per share, the two sides never sealed a deal. Microsoft later abandoned its offer to buy the whole company and offered an alternative proposal to acquire only Yahoo’s search business.

Mr. Schachter said second-quarter earnings are likely to be in line with Wall Street estimates of $.12 per share, but that the nation’s economic slowdown is putting a drag on online display advertising, which could prompt Yahoo to release softer guidance for the second half.

The settlement calls for eight of nine incumbent Yahoo directors to stand for re-election. Director Robert Kotick will quit the board. After the annual meeting, the Yahoo board will expand to 11 members. Mr. Icahn, who has been a harsh critic of Mr. Yang, will be named to the board with the final two directors selected by the board from a list of nine candidates backed by Mr. Icahn. The list includes the eight remaining members of the Icahn slate plus Jonathan Miller, a partner in venture capital firm Velocity Interactive Group and a former chief executive of AOL.

As the proxy battle raged, Microsoft had suggested that it was more amenable to negotiating with an Icahn-led board than an incumbent board it portrayed as obstructionist. It remains unclear, however, whether Microsoft would seek to renew a full or partial takeover bid once Mr. Icahn gains a board seat.