Twitter Inc. and activist hedge fund Elliott Management Corp. have agreed to a truce that will shake up the social-media company’s board but leave Chief Executive Jack Dorsey in place.
The deal halts what was shaping up as one of the highest profile clashes between an activist investor to oust a founder of a high-profile tech company.
The agreement calls for Twitter to appoint two new board members to what was an eight-person board, with a promise to search for a new, third independent director, the company said.
Twitter also has committed to $2 billion in share repurchases. The buyback is to be funded in part by a $1 billion investment from technology-focused investment firm Silver Lake, the social-media company said. Twitter also pledged to deliver growth.
The agreement notably doesn’t include the removal of Mr. Dorsey, CEO and co-founder of Twitter, a central pillar of Elliott’s campaign, which came to light earlier this month. Elliott has taken a roughly 4% stake in Twitter, which is valued at about $26 billion.
Mr. Dorsey splits his time between Twitter and Square Inc., a financial technology company he also co-founded and for which he serves as chief executive.
The dual responsibility has frustrated some investors. Mr. Dorsey last week defended his workload, telling a Morgan Stanley event he has “enough flexibility” in his schedule to focus on critical issues at both Twitter and Square. He has previously said he spends equal time at both companies.
The agreement saves Mr. Dorsey from losing his CEO title at Twitter for a second time. He ran the company known best for allowing users to post short messages until 2008, when he was pushed out, in part because of technical problems with the platform. He returned as executive chairman in 2011 and regained the CEO title in 2015, giving up the chairmanship.
Elliott had also nominated four directors to Twitter’s board including Jesse Cohn, its head of U.S. equity activism who will now join Twitter’s board along with Egon Durban, co-CEO and managing partner of Silver Lake.
The Silver Lake investment comes in the form of 0.375% convertible senior notes due 2025.
The private-equity firm had looked at purchasing Twitter in the past and after news broke of Elliott’s investment in the company, the firm reached out to Mr. Dorsey, according to a person familiar with the matter.
The agreement leaves open the possibility of executive change at Twitter. Both Messrs. Cohn and Durban will join a new committee to examine Twitter’s leadership structure—including the role of Mr. Dorsey—with plans to announce its findings by the end of the year.
The social-media company Monday said it would strive to win a greater share of digital advertising business, where it has trailed giants such as Facebook Inc. and Google, owned by Alphabet Inc. Twitter said it would detail revenue growth targets in the fall.
The company also pledged to grow daily average use rate 20% or more per year. Twitter has 152 million daily average users, according to its latest quarterly figures. Facebook, which started just two years earlier now has more than 1.6 billion monthly users.
Twitter shares traded 1.1% lower after the announcement amid far steeper losses in the broader market.
Before Elliott’s investment was revealed, Twitter’s stock was little changed since Mr. Dorsey returned to the CEO role after a hiatus, even as shares of rival social network Facebook Inc. and the broader market took flight. Twitter’s market capitalization, at just over $25 billion, is a fraction of that of Facebook.
Twitter stock took a brutal hit in October, falling 20% in one day after technical glitches in its advertising software roiled the company in the third quarter.
The stock was down slightly Monday morning at $33 on news of the so-called cooperation agreement after rallying since the Elliott push came to light.
The settlement comes just over a week after Elliott officials and Twitter management first sat down together to discuss the hedge fund’s demands. The outcome fits a pattern that has been emerging for activists and their targets. In the fall, AT&T Inc. and Emerson Electric Co. managed to quickly end high-profile challenges by agreeing to make arguably modest changes.
Twitter’s shares and financial performance have long lagged its popularity and influence in culture and politics. The company has also faced criticism over the sometimes-toxic discourse on its platform.
The agreement stipulates, however, that neither Elliott nor Silver Lake will interfere with the platform’s policies or rules.
“It’s time for Twitter to roll up our sleeves and get back to work with the support of our new directors,” said Chief Financial Officer Ned Segal.
Write to Corrie Driebusch at corrie.driebusch@wsj.com