Yahoo said Monday it will buy 40 million of its shares owned by activist hedge fund trader Daniel Loeb's Third Point for $29.11 a share, Friday's closing price, and that he and two other Yahoo directors nominated by Third Point have resigned.
Third Point, which settled a bitter proxy battle with Yahoo last year after months of criticism of the company, will still own about 20 million shares, less than 2 percent of the Internet media company's common stock.
The resignations of Loeb, Harry J. Wilson, and Michael J. Wolf as Yahoo directors were part of the settlement with Third Point in May 2012, Yahoo said.
The company, which plans to fund the Third Point transaction primarily with cash, said it would increase earnings per share.
After the deal, about $700 million will remain under a $5 billion overall buyback authorization that Yahoo announced last year.
Yahoo share prices dropped 3.5 percent on the Nasdaq in early trading. (For Yahoo's latest stock price, click here.
—By Reuters, with CNBC.com