The e-commerce company has been fighting a push from the activist investor to spin off PayPal, eBay's mobile payment business that is growing revenue faster than the rest of the company. Icahn launched his campaign against the company in January.
Under a deal announced Thursday, Icahn — whose has a minority stake in eBay — is dropping the PayPal strategy and withdrawing his proposal to put two nominees on the board.
In turn, eBay will make David Dorman an independent director, the 10th of the 12-member board. The 60-year-old Dorman is chairman of CVS Caremark Corp. and founding partner of Centerview Capital Technology.
Icahn still believes eBay should be spun off and said in a statement that he'll seek confidential talks with the company, whose leadership Icahn has labeled as "either incompetent or negligent."
Icahn said he and eBay President and CEO John Donahoe have agreed to meet regularly when Donahoe is in New York to talk about eBay's strategic options.
Donahoe, in an interview with CNBC early Thursday, brushed of the harsh criticism from Icahn that had been directly leveled at him.
"I haven't been paying a lot of attention to the back and forth," he told the business network.
Icahn signed a confidentiality agreement that covers any non-public information that board members and certain company executives may share with him. And eBay will not put into place a policy that would prevent those individuals from speaking with Icahn.
The annual meeting for EBay, based in San Jose, Calif., takes place on May 13.
Shares fell 74 cents to $55.15 before the opening bell.