Just last week Yahoo is warning its shareholders to stay away from billionaire investor Carl Icahn, who has been putting mounting pressure on Yahoo's board to do a deal with Microsoft.

Well now Yahoo is adopting a different tack.

According to online reports, Yahoo is going to appoint Icahn and two members of his slate of directors to the company's board.

This is a bid by Yahoo to settle a proxy battle with its rebel shareholder ahead of its 1 August annual shareholders meeting.

Icahn has been open in stating his ambition to replace the entire Yahoo board including CEO and co-founder Jerry Yang.

But now he seems he has settled for less.

Yahoo says it will expand its board to 11 members from nine, with eight of its existing directors standing for re-election.

Icahn will be appointed and the remaining two board seats will be chosen from a list that includes Icahn's original slate of candidates and Jonathan Miller, former chairman and CEO of Time Warner's AOL.

The billionaire investor said in the statement that this was a "good outcome" and he continued to believe a transaction to sell Yahoo or its search business should be given full consideration.

"I am happy that the board has agreed in the settlement agreement that any meaningful transaction, including the strategy in dealing with that transaction, will be fully discussed with the entire board before any final decision is made", he said.