Other sources [1] estimate the impact on Yahoo's core business, after subtracting out Alibaba's stock movements, at about $1.3B. On a $4.8B deal, that's about 27%.
The drop seems excessive to me, even taking into account BABA's daily performance. Bought some shares but didn't bother hedging against BABA so it's essentially an investment in BABA and baby arb, would definitely look into more serious hedging if I were managing more capital.
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.