Yahoo is repurchasing 40 million shares stock from Third Point, the hedge fund run by Daniel Loeb, who will resign from the Internet company’s board along with two other directors July 31 with the transaction.

Loeb, whose Third Point is reaping $1.16 billion from the sale, instigated the ouster of former Yahoo CEO Scott Thompson last year after it was disclosed the exec lied about receiving a computer science degree. Loeb also helped recruit Google exec Marissa Mayer, who became CEO following Thompson’s exit.

In mid-morning trading, Yahoo shares were down 4%, trading at $27.93 per share.

“Our read is that the reduced stake and board departures mean that aspects of Yahoo, which benefitted from a longer-term view of the company, will likely become much shorter-term in nature,” Pivotal Research Group senior analyst Brian Wieser wrote in a research note. “It also amplifies the need for the company to articulate a corporate strategy distinct from a product strategy.”

Following the repurchase, Third Point will own approximately 20 million shares, representing less than 2% of Yahoo’s outstanding common stock. In accordance with the board’s settlement agreement announced on May 13, each of the directors originally nominated by Third Point — Loeb, Harry J. Wilson and former MTV exec Michael Wolf — have submitted their resignations from Yahoo’s board of directors.

“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 a statement. “While there’s still a lot of work ahead, they’ve given us a great foundation.”

Under Mayer, Yahoo has engaged in a series of acquisitions to reposition the company, the biggest of which was its $1.1 billion deal for blog site Tumblr earlier this year.

Following the departure of Loeb, Wilson and Wolf, Yahoo’s board will comprise seven members. Max Levchin, who was appointed as a director upon mutual agreement between Third Point and the board, will continue as a director; the company said its board is committed to revisiting the board’s “size and composition.”

Yahoo previously announced a plan to purchase an additional $1.9 billion of common stock, and the new repurchase agreement becomes part of that plan. Upon completion of this repurchase, approximately $700 million will remain under the $5 billion buyback authorization announced last year, which the company said remains in effect. Yahoo said it expects to fund the transaction primarily with cash, and the transaction is accretive to earnings per share.

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