Sotheby's said it reached an agreement with Daniel Loeb's Third Point, giving the hedge fund three seats on the auctioneer's board.
Under the deal, Sotheby's will also terminate its shareholder rights plan, or "poison pill," at its annual shareholder meeting on May 6.
The auctioneer said Third Point had withdrawn its lawsuit against the plan.
Billionaire activist Loeb had sued to remove Sotheby's poison pill, which prevents activist shareholders from owning 10 percent or more of the company.
Third Point, which currently owns just under 10 percent in Sotheby's, can raise its stake to up to 15 percent under the deal.
Apart from Loeb, Olivier Reza and Harry Wilson will be added to Sotheby's slate of directors up for election at the annual meeting, increasing the board to 15 members.