The e-commerce giant announced it will—at Icahn's urging—appoint former AT&T chief David Dorman as an independent director. In exchange, Icahn said he'll withdraw his campaign to get eBay to separate its PayPal units—for now—and pull his two nominees to the company's board of directors.
EBay CEO John Donahoe said in a CNBC interview Thursday that the agreement signals that the activist investor will be a long-term shareholder in the company.
But Donahoe said he won't say that Icahn capitulated.
Icahn tweeted Thursday morning:
In an eBay statement, Icahn is quoted as saying: "We are happy to have reached this détente with eBay and believe that Dave Dorman will be a great addition to the company's board of directors."
The 60-year-old Dorman is a founding partner of investment firm Centerview Capital Technology, chairman at CVS Caremark and serves on the board of Yum Brands. Dorman's resume also includes a run on the board of Motorola.
Donahoe said on CNBC's "Squawk Box" that he believes Icahn now sees eBay's potential, after they found common ground in discussions over the weekend centered on understanding the company better and the fundamentals.
"For now we think eBay and PayPal are better together," Donahoe said. "EBay makes PayPal more successful because of the strong synergies and vice a versa. If and when that changes, we'll act rationally."
Another big eBay shareholder, Legg Mason's Bill Miller, was on set during the Donahoe interview. Miller said, "We've been in and out of eBay over the years and I have a high regard for John and what they've done."
"We bought the stock because we thought it was undervalued. We agree with Carl on that one. We think it's worth in the mid-$70s," Miller said—adding PayPal options should be studied over time, but "it's certainly not clear right now that PayPal should be split off."
As part of the settlement, Icahn also signed a confidentiality pact in which eBay agreed not to prevent or discourage directors and certain company officers from speaking with the billionaire.
"I am optimistic that this arrangement with eBay will enhance our ability to discuss large issues affecting the company with greater intelligence and will help to enhance shareholder value," Icahn said.
"However, I continue to believe that eBay would benefit from the separation of PayPal at some point in the near future and intend to continue to press my case through confidential discussions with the company," he added.
Donahoe told CNBC that he plans to continue to talk with Icahn as he would any other large shareholder.
Last month, Icahn asked eBay to sell 20 percent of the PayPal unit in an initial public offering—a change from his previous call for a complete spinoff. Muddying the waters, Icahn had also accused eBay board member Marc Andreessen of having conflicts of interest with the Internet pioneer's venture capital business.
On Thursday, Donahoe responded—saying he was not focused on the war of wars in the media—instead concentrating on growing eBay. "I've haven't been paying attention to a lot of the back and forth."
Donahoe also said he's had confidential conversations with Icahn "all the way along."
—By CNBC anchor and New York Times reporter Andrew Ross Sorkin and CNBC's Matthew J. Belvedere. Reuters contributed to this report.