Yahoo! (Nasdaq: YHOO) has agreed to buy back $1.16 billion of shares held by Third Point LLC and said activist Daniel Loeb, who runs the fund, is leaving the board along with other directors added last year to end a proxy fight.

Yahoo will repurchase 40 million shares at $29.11 apiece, leaving Third Point with about 20 million shares, or less than a 2 percent stake, the Sunnyvale, California-based company said today in a statement. Loeb, Harry Wilson and Michael Wolf are resigning from the board, which will now have seven members.

Loeb became a director in May 2012 in a board shakeup tied to the ouster of former Yahoo Chief Executive Officer Scott Thompson over a failure to correct errors in his credentials. Third Point had been locked in a dispute with Yahoo about its management, faulting Thompson for cutting jobs before he articulated a complete turnaround strategy and for failing to accept a $44 billion takeover bid from Microsoft Corp.

The stock had risen about 83 percent since then on stock repurchases and earnings growth stemming from its stake in Chinese Internet company Alibaba. Shares slid more than 4 percent Monday morning.

“Daniel Loeb had the vision to see Yahoo for its immense potential – the potential to return to greatness as a company and the potential to deliver significant shareholder value,” Yahoo CEO Marissa Mayer said in the statement.

Yahoo shares fell 3.3 percent to $28.14 at 10:09 a.m. in New York. The stock had gained 46 percent this year before today, compared with a 19 percent gain for the Standard & Poor’s 500 Index.

“Harry, Michael and I are pleased to have played key roles in Yahoo’s resurgence since we joined the Board last spring,” Loeb said in the statement. “Since our board’s rigorous search led us to hire Marissa Mayer as CEO, Yahoo’s stock price has nearly doubled, delivering significant value for shareholders.”

The exits will leave Yahoo’s board with seven directors. PayPal co-founder 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

The stock repurchased from Third Point will be part of Yahoo’s previously announced $1.9 billion buyback program. Upon completion of the transaction, about $700 million will remain under the $5 billion repurchase authorization announced last year, Yahoo said in the statement.

The board resignations are effective July 31, Yahoo said.