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It’s always a challenge to find the right legal guide for Washington’s regulatory jungle. Valero Energy Corporation thought it made the right choice this spring when it picked Jones Day to shepherd a deal through the Federal Trade Commission. But a month later Valero abruptly switched counsel � to Wachtell, Lipton, Rosen & Katz � in an apparent attempt to improve its chances at the FTC. Neither law firm was able to prevent what Valero wanted to avoid, however: a drawn-out review of its $7 billion bid for Premcor Inc., a Connecticut-based oil refinery [Deals & Suits, page 37]. In June the FTC hit Valero, a San Antonio � based oil company, with a second request for information on the Premcor deal. Valero’s initial choice of counsel made sense. Jones Day represented Diamond Shamrock � one of Valero’s predecessor companies � for decades, and partner Robert Profusek currently sits on Valero’s board. Plus the firm has a well-regarded team of antitrust lawyers in its Washington, D.C., office, including Phillip Proger, Peter Love, and Tom Smith. The selection of Jones Day created a problem for Valero at the FTC, however. Because chairwoman Deborah Majoras is a former Jones Day partner (and is married to a current one), she recused herself from voting on the Valero/Premcor transaction. That meant that the fate of the deal, which was announced in April, initially rested with the FTC’s remaining commissioners � Republicans Thomas Leary and Orson Swindle, Democrat Jon Liebowitz, and Independent Pamela Jones Harbour, who generally votes with Liebowitz. So in Valero’s case, the commission’s Republican majority would likely turn into a tie. In May, Valero quietly dropped Jones Day in favor of a Wachtell team headed by Ilene Knable Gotts, which was already advising the company on its bid for Kaneb Services LLC and Kaneb Pipe Line Partners LP. Valero general counsel Kim Bowers declined to comment on the reason for changing horses midstream. Bowers only says that there was no problem with Jones Day’s advice and that the company will likely use the firm again in the future. One observer has an idea why Valero switched, however. This lawyer, who has worked with the company in the past but who declined to be identified, says that an FTC official suggested that the company consider dropping Jones Day. That way, Majoras could vote on Premcor. But though Valero jettisoned Jones Day, Majoras didn’t end her recusal. According to another FTC official, Majoras continues to stay out of the Premcor review simply because of the fear of the appearance of impropriety � “no other reason than that.” Majoras, through an FTC spokesman, declined to discuss her recusal. Making things even stickier for Valero, commissioner Swindle stepped down on June 30, and at press time the White House had yet to select his replacement. As a result, Democratic commissioner Liebowitz will temporarily be able to muster a majority on the FTC. A former Senate Judiciary Committee staffer, Liebowitz is seen as sympathetic to Democratic concerns that the FTC carefully vet all oil industry deals. Valero has managed to solve at least one of its problems at the FTC. On June 15 the commission approved the company’s $2.8 billion purchase of Kaneb. The deal had been mired in a lengthy review. But after Valero agreed to sell some of Kaneb’s facilities in order to preserve competition, the FTC voted to approve the deal. Majoras abstained because of Jones Day’s involvement in the Premcor review, which had become linked to the Kaneb purchase as part of a remedy proposed by Jones Day. The Premcor deal has attracted more attention than Kaneb, though. Several Democratic senators have already told the FTC that they’re looking at how it handles Premcor. The commission responded by making its second request for information from Valero. The company now faces the exact situation that it faced with Kaneb and was trying to escape with Premcor � a lengthy review. A version of this story originally appeared in The American Lawyer, a sibling publication of Corporate Counsel.

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