Yahoo is also buying back 40 million shares of its common stock from Third Point LLC, Loeb's hedge fund. That cuts Loeb's stake in Yahoo from 5.8 percent to less than 2 percent.
Loeb instigated the departure of former Yahoo CEO Scott Thompson in 2012 by revealing that Thompson did not have a computer science degree, as Yahoo had previously stated. He left that May and Yahoo named longtime Google executive Marissa Mayer as its CEO two months later. The stock has risen about 83 percent since then on stock repurchases and earnings growth stemming from its stake in Chinese Internet company Alibaba.
Yahoo is spending $1.16 billion to buy Third Point's stock. It's paying $29.11 per share, Friday's closing price. It will pay cash.
Yahoo said it will have about $700 million remaining under an existing $5 billion buyback announced last year. The Sunnyvale, Calif., company said it plans to continue making repurchases under that plan.
Besides Loeb, Harry Wilson and Michael Wolf will be leaving Yahoo's board, which will then have seven directors. Max Levchin, who was named a board member upon mutual agreement between the board and Third Point, will continue in his post. Yahoo said that the remaining directors will take a look at the board's size and composition. It did not say when, or if, any other board changes would be made.
Shares of Yahoo fell $1, or 3.4 percent, to $28.11 in Monday morning trading. Shares hit a 5-year high of $29.83 on Thursday.