Ebay and billionaire activist investor Carl Icahn have settled their proxy fight ahead of the company's annual meeting.

Financier Carl Icahn poses for photos upon arriving for the 32nd annual New York City Police Foundation Gala in New York. (AP Photo/Henny Ray Abrams, File)

Icahn and eBay had been in an acrimonious tussle over PayPal, the e-commerce company's quickly growing mobile payment arm. Icahn, who owns about 2 percent of eBay's shares, said repeatedly the company should spin off all or part of PayPal, while eBay has said the company is better as a whole. He has also criticized the company's directors including CEO John Donahoe.

But under a deal announced Thursday, Icahn said he is dropping the PayPal strategy and withdrawing his proposal to put two nominees on the board.

In return, eBay will make David Dorman an independent director, the 10th on the 12-member board. The 60-year-old Dorman is chairman of CVS Caremark Corp. and founding partner of Centerview Capital Technology.

Icahn said he still believes eBay should spin off PayPal 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 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 off 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 nonpublic 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.

Stifel Nicolaus analyst Jordan E. Rohan said he thought Icahn's pressure had actually been good for the company.

"We have been of the view that the activist interest in a PayPal spin has provided support for shares of eBay," he said. "With the removal of Carl Icahn's activist agitation and lack of a near-term catalyst of a spin, we believe shares will be pressured as weaker fundamentals return to focus."

The annual meeting for EBay, based in San Jose, Calif., takes place on May 13.

Shares $1.15, or 2 percent, to $54.74 in midday trading.

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