Let's break it down. Red Hat's primary business is still licensing and service its namesake versions of the Linux operating system, a core piece of software primarily used to power big computer servers that run business applications. Red Hat's Linux version is Open Source meaning anyone can download and install copies for free. Red Hat makes money doing the heavy lifting from companies that don't want to -- installing and maintain Linux on servers.

Red Hat's other main product is the JBoss application server, another Open Source gem. JBoss is growing in popularity and is considered a very solid technology that can compete head-to-head with products from Orace and IBM, among others. Red Hat has had a perenially high price-to-earnings ratio. It's currently at 49 based on backwards looking measurements. Growth has slowed for RedHat and the company is trying to ramp up new sales to spur top-line numbers while at the same time protecting its existing license-paying customers.

So Red Hat is definitely not in real danger but its not the healthiest company, either. In other words, Red Hat doesn't have to sell so it can command a much higher price than a Yahoo! or a Sun Microsystems, both of which were clearly in of a White Knight. This gives RedHat considerable bargaining power and means a higher premium will likely be demanded from any acquirer.  But unlike Sun, Red Hat does not have the same level of cash in its coffers -- cash that immediately can be put to work by the agressive Oracle team. One last point. The true value in the software universe is rapidly moving away from the basic operating systems like Linux and towards applications that perform more customer-facing tasks such as customer relationship management software (CRM)

While RedHat has relatively sold products and a strong position in the Open Souce community, the company is comparatively weaker in the applications department. That makes Red Hat's core value proposition far less compelling to any investor looking to buy more than a free piece of software tied to a service contract. The upshot? Red Hat is strong enough to walk alone for a while and not pretty enough to get a really big-ticket sales bid. That's not a good scenario for an acquisition.