Activist investor Carl Icahn has abandoned his proxy fight at Genzyme Corp in return for the biotechnology company's acceptance of two of his representatives to its board.

The agreement comes a week before the company's annual meeting on June 16.

Icahn had nominated himself and three allies to Genzyme's board after a manufacturing crisis lead to shortages of two of the company's life-saving drugs.

Genzyme has agreed to appoint two Icahn representatives -- Dr. Steven Burakoff and Dr. Eric Ende -- and in return Icahn will withdraw his slate and vote his shares in favor of the company's nominees.

I think overall this is a positive, said Michael Obuchowski, chief investment officer at First Empire Asset Management, which owns Genzyme's shares and oversees nearly $4 billion in assets. It avoids a continuing confrontation with Icahn and provides more oversight over the direction the company takes.

Henri Termeer, Genzyme's chief executive officer, said the agreement provides a pragmatic and constructive solution that allows us to focus on continuing to strengthen and build the company to create value for our shareholders.

Genzyme's board consists of 10 members, all of whom are up for re-election at the annual meeting.

On Monday the company said it had nominated Dennis Fenton, a former executive vice president at Amgen Inc , to its board. The nomination was part of an agreement announced in April with Ralph Whitworth of Relational Investors, one of Genzyme's biggest shareholders.

Genzyme has also appointed Whitworth, a less openly aggressive activist than Icahn, to its board.

After the appointment of Burakoff, Ende and Fenton, Genzyme's board will expand to 13 members.

I am always pleased when a proxy fight can be avoided, Icahn said in a statement. New oversight at the director level will help this great company achieve its full potential.

Burakoff is Professor of Medicine, Hematology and Medical Oncology at the Mount Sinai School of Medicine. Ende is a former biotechnology analyst at Merrill Lynch & Co.

Icahn originally had proposed himself, Burakoff, Alexander Denner, who is managing director of Icahn Partners, and Dr. Richard Mulligan, Professor of Genetics at Harvard Medical School.

Denner and Mulligan sit on the board of biotechnology company Biogen Idec Inc , and Genzyme had argued that there would be a conflict of interest if they were also to sit on the board of Genzyme. Genzyme is developing a rival product to Biogen's multiple sclerosis drugs Avonex and Tysabri.

Genzyme, which is based in Cambridge, Massachusetts, has been racing to fix problems at its manufacturing site, shake up management, introduce new people onto its board and increase transparency.

Over the past year, we have made substantial progress in enacting operational and organizational changes to return to our historical path of sustainable growth, Termeer said.

Genzyme's shares were down 0.7 percent at $47.49 on the Nasdaq on Wednesday morning.

(Reporting by Toni Clarke, editing by Gerald E. McCormick, John Wallace and Matthew Lewis)

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