It's sometimes bewildering when a drugmaker's share price makes a significant one-day move on no apparent news. But investors shouldn't fret about the $4-and-change drop in shares of PDL BioPharma
PDL's shares fell more than 30% on Tuesday after the company delivered a $4.25-a-share special dividend payment to investors. Whenever a company makes a one-time dividend payment, its value is worth that much less to any investor who theoretically buys its shares the following day, and the stock price adjusts to match.
The large one-time dividend payout is part of PDL's plan to break apart the company and return cash to shareholders. Much of the funding for this dividend came from PDL's sale of the rights to its marketed drugs and biopharma manufacturing facilities earlier this year and late last year.
Hopefully, the recent histories of other companies that have declared special dividends won't mirror PDL's own future. Drugmakers like Ligand Pharmaceuticals
Ultimately, PDL shares' performance from now on depends on management's decisions and its pipeline's progress. The most interesting upcoming event for Fools considering a stake in PDL is the breakup of the company. Investors should carefully monitor how the market chooses to value its royalty stream and R&D assets once they are divided.
In asset-breakup cases like these, the market often incorrectly values at least one of the resulting spinoffs, as when Walter Industries
Fool contributor Brian Lawler owns shares of PDL but no other company mentioned in this article. Walter Industries is a former Motley Fool Hidden Gems recommendation. The Fool has an A+ disclosure policy.