Mr. Yang? It's 18 of Yahoo’s Top Shareholders Calling, Line 1 …

Yahoo (YHOO) is fast losing the faith of investors and Wall Street analysts–not that either group had much faith in the company to begin with.

Microsoft’s threatening letter to Yahoo last week seems to have caused them to give up hope that Microsoft (MSFT) will ever raise its $31-a-share bid for the Internet company. Indeed, some are beginning to think it’s more likely the company will lower it. In a note to clients yesterday, Cowen & Co. analyst Walter Pritchard wrote that Microsoft’s letter “sets in motion a process that is most likely to result in a transaction at or below the current bid price.”

And while that might be a big disappointment for Yahoo CEO Jerry Yang and the rest of the company’s executive leadership, it might not be much of one for Yahoo’s major shareholders. Why? Eighteen of the company’s top 25 shareholders own more shares of Microsoft than they do of Yahoo. The last thing they want is for Microsoft’s shares to slide if the company decides to pay too much for Yahoo. And it just so happens that they own 42% of Yahoo’s shares.

It’s a safe bet that it was these folks Microsoft CEO Steve Ballmer was referring to when he told Yahoo that he believed “the majority of [its] shareholders” find the large premium Redmond offered for the company back in February to be even more significant today. Safe bet too that Ballmer knows Microsoft is in the catbird seat. Said David Hilal, associate director of research at Friedman, Billings, Ramsey & Co., “Microsoft has got more leverage than people think. That doesn’t mean that they won’t raise their bid, but this shows that Microsoft is in the driver’s seat.”