If buying IP means that you're buying a codebase so full of security holes that it'll likely result in a billion dollars worth of lawsuits in the future, a billion dollar drop in valuation is rational even if the existing valuation is negative.

Consider how one sometimes says "the chairs in the building are valued higher than the stock"--like, it's so low that the actual stuff they have is worth more than that even after liabilities.

Now light the chairs on fire.

It can get worse.