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Heading off a proxy battle, Microsoft agreed to give activist shareholder ValueAct Capital “regular meetings” with executives and directors and the option to join its board.

ValueAct, which has accumulated just under a 1 percent stake in the company, had been pressuring Microsoft to take steps to increase shareholder value. According to a Securities and Exchange Commission filing made Friday by Microsoft, ValueAct agreed not to “make, or in any way participate in any ‘proxy contest’ or other solicitation of proxies.” ValueAct also agreed to not make a statement or announcement that “constitutes an ad hominem attack on, or otherwise disparages” Microsoft or any of its current or former directors.

Microsoft had set an Aug. 30 deadline for shareholders to notify the company of intentions to fight a proxy battle. According to the filing, the deal between Microsoft and ValueAct was reached Wednesday. They agreed, though, to announce the news Friday, just before the long holiday weekend.

“Our board and management team are committed to enhancing growth and value for Microsoft shareholders, and we look forward to ValueAct Capital’s input,” Microsoft Chief Executive Steve Ballmer said in a statement announcing the deal.

The agreement gives ValueAct the option of having its president, Mason Morfit, join the Microsoft board at the first quarterly board meeting after the upcoming annual shareholders meeting, which have historically been in November.

“Microsoft is a world-class company with tremendous long-term potential,” Morfit said in a statement. “At this critical inflection point in the company’s evolution, I look forward to actively working together with the board and Microsoft’s management team to continue to create value for all shareholders.”

Microsoft currently has nine directors and has said it could expand its board up to 12 members. The news release announcing the deal did not say whether the company would simply add Morfit to the board or replace another director. Neither Microsoft nor ValueAct commented beyond the news release and regulatory filing.

ValueAct is widely seen as a catalyst that led to Ballmer’s announcement last week that he plans to retire within a year. In an interview with The Seattle Times, though, Ballmer denied ValueAct’s pressure had anything to do with his decision to step down.

While ValueAct holds less than 1 percent of Microsoft’s outstanding stock, Nomura analyst Rick Sherlund said it’s been able to wield a disproportionate amount of weight. That’s because many large institutional shareholders remain frustrated by Microsoft’s dormant stock, which has languished for more than a decade.

Those large shareholders, such as mutual funds, are typically unwilling to launch their own proxy battles. But they were willing to back ValueAct, said Sherlund.

“They are getting a lot of support from shareholders,” he said. “They have leverage.”

It seems unlikely that ValueAct will stop with Ballmer’s retirement and a board seat. Sherlund believes the firm will push the company to significantly boost its dividend and buy back a large amount of stock in order to boost shareholder value.

An announcement regarding a larger-than-usual dividend increase could come as soon a mid-September, a time when Microsoft has historically boosted dividends.

“There’s a rather dramatic change in corporate governance coming to Microsoft,” Sherlund said.

Microsoft shares closed at $33.40, down 15 cents, though the announcement came after the market closed. In after hours trading, Microsoft shares climbed 2 cents.

Jay Greene: 206-464-2231 or Twitter: iamjaygreene