Ligand Pharmaceuticals ( LGND) and its biggest investor have declared a truce, agreeing to terms before a proxy contest that had been scheduled for next month.

The deal between the company and Third Point LLC enables the investment management and advisory firm to add three members to Ligand's eight-member board and help the company assess its options. The proposal, announced Monday, is similar to one that was previously proposed by Third Point and ignored by Ligand.

The sides issued a joint press release in which Ligand said it was "excited by the opportunity to work closely with the expanded board." Third Point praised Ligand as "a strong company with an extraordinary product pipeline."

However, behind the kind words and behind the scenes, another big shareholder put pressure on San Diego-based Ligand to settle its differences with New York's Third Point. The previously silent shareholder is David M. Knott of Syosset, N.Y., who runs several partnerships and management firms that own 7.26 million shares, or 9.7% of Ligand's stock.

Third Point, through its management company and several funds, owns 7.74 million shares, or just under 10%.

Knott recently told Ligand that although he had bought its stock "solely for investment purposes," he had become convinced that Third Point was correct in its dispute with the company, according to a document filed Dec. 2 with the Securities and Exchange Commission.

Three members of Knott's management team met with Ligand's top executives Nov. 22 to discuss Ligand's strategy. Knott said that if he were forced that day to choose between Ligand's and Third Point's nominees for the board, he would favor Third Point.

Saying he would keep an "open mind," Knott "expressed most emphatically" that he wished to avoid a proxy fight so that Ligand could proceed with its strategic restructuring and shareholders could get the most value from the company.

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