PREM14C 1 s002506x1_prem14c.htm PREM14C

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14C

SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934

Check the appropriate box:
Preliminary Information Statement
o
Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2))
o
Definitive Information Statement
 
 
 
Valero Energy Partners LP
(Name of Registrant as Specified In Its Charter)
 
 
 
Payment of Filing Fee (Check the appropriate box):
   
 
o
No fee required
 
 
 
Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
 
 
 
 
(1)
Title of each class of securities to which transaction applies:
 
 
Common units representing limited partner interests
 
(2)
Aggregate number of securities to which transaction applies:
22,493,484 common units
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
$42.25 per common unit
 
(4)
Proposed maximum aggregate value of transaction:
$950,349,699
 
(5)
Total fee paid:
$115,183 determined in accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, by multiplying 0.0001212 by the proposed maximum aggregate value of the transaction of $950,349,699
 
 
 
o
Fee paid previously with preliminary materials.
 
 
 
o
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
 
 
 
(1)
Amount Previously Paid:
   
 
(2)
Form, Schedule or Registration Statement No.:
   
 
(3)
Filing Party:
   
 
(4)
Date Filed:
   

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PRELIMINARY COPY—SUBJECT TO COMPLETION


ONE VALERO WAY
SAN ANTONIO, TEXAS 78249

NOTICE OF ACTION BY WRITTEN CONSENT
AND INFORMATION STATEMENT

WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY

To the Common Unitholders of Valero Energy Partners LP:

This notice of action by written consent and the accompanying information statement are being furnished to the holders (the “VLP Common Unitholders”) of common units representing limited partner interests (“Common Units”) in Valero Energy Partners LP, a Delaware limited partnership (“VLP”), in connection with the Agreement and Plan of Merger, dated as of October 18, 2018 (as it may be amended from time to time, the “Merger Agreement”), entered into by and among Valero Energy Corporation, a Delaware corporation (“VLO”), Forest Merger Sub, LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of VLO (“Merger Sub”), VLP and Valero Energy Partners GP LLC, a Delaware limited liability company and the general partner of VLP (“VLP GP”), pursuant to which, among other things, and subject to the satisfaction or waiver of the conditions set forth therein, Merger Sub will be merged with and into VLP, with VLP surviving the merger and continuing to exist as a Delaware limited partnership (the “Merger”).

If the Merger is completed, you will be entitled to receive $42.25 in cash, without interest, less any applicable withholding taxes, for each Common Unit you own.

The conflicts committee (the “VLP GP Committee”) of the board of directors of VLP GP (the “VLP GP Board”), consisting of three independent directors, has unanimously, and in good faith, (i) determined that the Merger Agreement and the Support Agreement (as defined below) and the transactions contemplated by the Merger Agreement and the Support Agreement, including the Merger (the “Merger Transactions”), are (A) fair and reasonable to the unaffiliated holders of outstanding Common Units (the “VLP Unaffiliated Unitholders”) and (B) in the best interest of VLP, (ii) approved the Merger Agreement, the Support Agreement and the Merger Transactions, (iii) recommended that the VLP GP Board approve the Merger Agreement, the Support Agreement, the execution, delivery and performance of the Merger Agreement and the Support Agreement and the consummation of the Merger Transactions and (iv) recommended that the VLP GP Board submit the Merger Agreement to a vote of VLP’s limited partners by written consent and recommend the approval of the Merger Agreement and the Merger by VLP’s limited partners, such action by the VLP GP Committee described in clauses (i)(B) and (ii) above constituting “Special Approval” (as such term is defined in the First Amended and Restated Agreement of Limited Partnership of VLP dated as of December 16, 2013, as amended by Amendment No. 1 thereto dated as of December 19, 2017 (as amended, modified or supplemented from time to time, the “VLP Partnership Agreement”)).

Upon receipt of the recommendation of the VLP GP Committee (and the approval of VLP GP’s sole member), at a meeting duly called and held on October 18, 2018, the VLP GP Board unanimously, and in good faith, (i) determined that each of the Merger Agreement, the Support Agreement and the Merger Transactions is (A) fair and reasonable to the VLP Unaffiliated Unitholders and (B) in the best interest of VLP, (ii) approved the Merger Agreement, the Support Agreement, the execution, delivery and performance of the Merger Agreement and the Support Agreement and the consummation of the Merger Transactions, (iii) resolved and directed that the Merger Agreement and the Merger be submitted to a vote of VLP’s limited partners by written consent (and authorized VLP’s limited partners to act by written consent without a meeting in connection with the approval of the Merger Agreement and the Merger) and (iv) recommended approval of the Merger Agreement and the Merger by VLP’s limited partners.

Under the applicable provisions of the VLP Partnership Agreement, the approval of the Merger Agreement and the Merger Transactions requires the approval of at least a majority of the outstanding Common Units. As of November 8, 2018, Valero Terminaling and Distribution Company, a Delaware corporation and an indirect wholly owned subsidiary of VLO (“VTDC”), owned approximately 65.5% of the outstanding Common Units and Valero Forest Contribution LLC, a Delaware limited liability company and a wholly owned subsidiary of VTDC (“Contribution Sub”), owned approximately 2% of the outstanding Common Units. As a result, VTDC and Contribution Sub own a sufficient number of Common Units to approve the Merger Agreement and the Merger Transactions on behalf of the VLP Common Unitholders. Concurrently with the execution of the Merger Agreement, VLP entered into a support agreement (the “Support Agreement”) with VTDC whereby VTDC has agreed, in its capacity as a VLP Common Unitholder, to deliver (or cause to be delivered) a written consent approving the Merger Agreement and the Merger Transactions. On November 8, 2018, for United States (“U.S.”) tax purposes, VTDC contributed 1,413,512 Common Units (representing approximately 2% of the outstanding Common Units) to Contribution Sub in exchange for all of the limited liability company interests of Contribution Sub and simultaneously therewith Contribution Sub executed and delivered to VLP a counterpart to the Support Agreement pursuant to which Contribution Sub is bound by all of the terms and provisions of the Support Agreement, as if Contribution Sub were an original party to the agreement.

Immediately prior to the closing of the Merger Transactions, VTDC will deliver, and, as the sole member of Contribution Sub, cause Contribution Sub to deliver, to VLP a written consent approving the Merger Agreement and the Merger Transactions. As a result, VLP has not solicited and is not soliciting your approval of the Merger Agreement or the Merger Transactions. Further, VLP does not intend to call a meeting of VLP Common Unitholders for purposes of voting on the approval of the Merger Agreement or the Merger Transactions.

The accompanying information statement provides you with detailed information about the Merger Agreement and the Merger Transactions. A copy of the Merger Agreement is attached as Annex A to the accompanying information statement and a copy of the Support Agreement is attached as Annex B to the accompanying information statement. We encourage you to read the entire information statement and its annexes, including the Merger Agreement and the Support Agreement, carefully. Please read “Material U.S. Federal Income Tax Considerations” for a more complete discussion of the U.S. federal income tax consequences of the Merger. You may also obtain additional information about VLP from documents VLP has filed with the Securities and Exchange Commission.

No action by you is requested or required at this time. If the Merger is consummated, you will receive instructions regarding the surrender of, and payment for, your Common Units.

   
Sincerely,
 

 
Chairman and Chief Executive Officer of Valero Energy
Partners GP LLC,
the general partner of Valero Energy Partners LP

The accompanying information statement is dated          , 2018, and is first being mailed to VLP Common Unitholders on or about          , 2018.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER OR PASSED UPON THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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SUMMARY TERM SHEET

The following summary highlights selected information in this information statement and may not contain all of the information that may be important to you. Accordingly, Valero Energy Partners LP, a Delaware limited partnership (“VLP”), encourages you to read carefully this entire information statement, its annexes and the documents incorporated by reference in this information statement. You may obtain the information incorporated by reference in this information statement without charge by following the instructions under “Where You Can Find More Information.”

Parties to the Merger Transactions

Valero Energy Partners LP

VLP is a master limited partnership (an “MLP”) formed by Valero Energy Corporation, a Delaware corporation (“VLO”), to own, operate, develop and acquire crude oil and refined petroleum products pipelines, terminals, and other transportation and logistics assets. With headquarters in San Antonio, Texas, VLP’s assets include crude oil and refined petroleum products pipeline and terminal systems in the Gulf Coast and Mid-Continent regions of the United States (“U.S.”) that are integral to the operations of ten of VLO’s refineries. VLP generates operating revenues by providing fee-based transportation and terminaling services to transport and store crude oil and refined petroleum products using its pipelines and terminals.

The common units representing limited partner interests in VLP (“Common Units”) are listed on the New York Stock Exchange (the “NYSE”) under the symbol “VLP.” On                   , 2018, the most recent practicable date before the printing of this information statement, 69,262,070 Common Units were issued and outstanding.

The principal executive offices of VLP are located at One Valero Way, San Antonio, Texas 78249, and its telephone number at that address is (210) 345-2000.

Valero Energy Partners GP LLC

Valero Energy Partners GP LLC, a Delaware limited liability company (“VLP GP”), is the general partner of VLP and is solely responsible for conducting the business and managing the operations of VLP. VLP GP owns all of the general partner interests and incentive distribution rights (“IDRs”) of VLP.

The principal executive offices of VLP GP are located at One Valero Way, San Antonio, Texas 78249, and its telephone number at that address is (210) 345-2000.

Valero Terminaling and Distribution Company

Valero Terminaling and Distribution Company, a Delaware corporation (“VTDC”), is an indirect wholly owned subsidiary of VLO. VTDC directly owns approximately 65.5% of the outstanding Common Units and is the sole member of VLP GP, Merger Sub (as defined below) and Contribution Sub (as defined below). As the sole member of Contribution Sub, which owns approximately 2% of the outstanding Common Units, VTDC beneficially owns, in the aggregate, approximately 67.5% of the outstanding Common Units. As the sole member of VLP GP, VTDC indirectly owns all of the general partner interests and IDRs of VLP and elects all of the directors of VLP GP. VTDC is not a party to the Merger Agreement (as defined below) but has executed the Support Agreement (as defined below) in connection with the Merger Agreement.

The principal executive offices of VTDC are located at One Valero Way, San Antonio, Texas 78249, and its telephone number at that address is (210) 345-2000.

Valero Energy Corporation

VLO is a Fortune 50 company based in San Antonio, Texas, with approximately 10,000 employees. VLO owns 15 petroleum refineries located in the U.S., Canada, and the United Kingdom (“U.K.”) with a combined throughput capacity of approximately 3.1 million barrels per day. VLO’s refineries produce conventional gasolines, premium gasolines, gasoline meeting the specifications of the California Air Resources Board (“CARB”), diesel, low-sulfur diesel, ultra-low-sulfur diesel, CARB diesel, other distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined petroleum products. VLO sells its refined petroleum products in both the wholesale rack and bulk markets, and approximately 7,400 outlets carry VLO’s brand names in the U.S.,

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Canada, the U.K., and Ireland. Most of VLO’s logistics assets support its refining operations, and some of these assets are owned by VLP. VLO also owns 11 ethanol plants in the Mid-Continent region of the U.S. with a combined production capacity of approximately 1.45 billion gallons per year. VLO sells its ethanol in the wholesale bulk market, and some of VLO’s logistics assets support its ethanol operations. VLO is the sole ultimate parent of (i) VLP GP, VTDC and Contribution Sub, which collectively own all of the general partner interests and IDRs of VLP and approximately 67.5% of the outstanding Common Units, and (ii) Merger Sub.

VLO’s common stock is listed on the NYSE under the symbol “VLO.”

The principal executive offices of VLO are located at One Valero Way, San Antonio, Texas 78249, and its telephone number at that address is (210) 345-2000.

Forest Merger Sub, LLC

Forest Merger Sub, LLC, a Delaware limited liability company (“Merger Sub”), is a wholly owned subsidiary of VTDC, which was formed by VTDC on October 16, 2018 solely for the purpose of effecting the Merger (as defined below). Merger Sub has not conducted any business operations other than those incidental to its formation and in connection with the transactions contemplated by the Merger Agreement (as defined below), including the preparation of applicable filings under the securities laws. Upon completion of the Merger, Merger Sub will cease to exist as a separate entity.

The principal executive offices of Merger Sub are located at One Valero Way, San Antonio, Texas 78249, and its telephone number at that address is (210) 345-2000.

Valero Forest Contribution LLC

Valero Forest Contribution LLC, a Delaware limited liability company (“Contribution Sub”), is a wholly owned subsidiary of VTDC, which was formed by VTDC on November 5, 2018 solely for U.S. tax purposes. On November 8, 2018, VTDC contributed (the “Contribution”) 1,413,512 Common Units (representing approximately 2% of the outstanding Common Units) to Contribution Sub in exchange for all of the limited liability company interests of Contribution Sub and simultaneously therewith Contribution Sub executed and delivered to VLP a counterpart to the Support Agreement pursuant to which Contribution Sub is bound by all of the terms and provisions of the Support Agreement, as if Contribution Sub were an original party to the agreement. Contribution Sub has not conducted any business operations other than those incidental to its formation and the Contribution and in connection with the transactions contemplated by the Merger Agreement, including the preparation of applicable filings under the securities laws. Upon completion of the Merger, Contribution Sub will remain a wholly owned subsidiary of VTDC.

The principal executive offices of Contribution Sub are located at One Valero Way, San Antonio, Texas 78249, and its telephone number at that address is (210) 345-2000.

Relationship of the Parties to the Merger Transactions

VLO is the sole ultimate parent of (i) VLP GP, VTDC and Contribution Sub, which collectively own all of the general partner interests and the IDRs of VLP and approximately 67.5% of the outstanding Common Units, and (ii) Merger Sub. VTDC is the sole member of Merger Sub, Contribution Sub and VLP GP, which is the sole general partner of VLP. Through its direct ownership of approximately 65.5% of the outstanding Common Units and its sole ownership of Contribution Sub, which directly owns approximately 2% of the outstanding Common Units, VTDC owns approximately 67.5% of the outstanding Common Units. As the sole member of VLP GP, VTDC has the right to appoint and remove all of the members of the board of directors of VLP GP (the “VLP GP Board”) and indirectly owns all of the general partner interests and IDRs of VLP, which are directly held by VLP GP. As the indirect sole owner of VTDC, VLO has a controlling interest in VLP GP, which manages the operations and activities of VLP.

None of VLP GP, VLP or any of their subsidiaries has any employees. VLP GP’s executive officers are not directly employed by VLP and are, instead, employed by an affiliate of VLO and their services are provided to VLP pursuant to an omnibus agreement and services and secondment agreement with VLO and its affiliates.

For more information regarding these relationships and the related party transactions among VLP, VLP GP, VTDC, Merger Sub, Contribution Sub and VLO, see “Special Factors—Interests of Certain Persons in the Merger.”

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The Merger

Pursuant to the Agreement and Plan of Merger, dated as of October 18, 2018 (as it may be amended from time to time, the “Merger Agreement”), entered into by and among VLO, Merger Sub, VLP and VLP GP, the parties have agreed to consummate the transactions contemplated by the Merger Agreement and the Support Agreement, including the Merger (the “Merger Transactions”), pursuant to which Merger Sub will merge with and into VLP, the separate existence of Merger Sub will cease and VLP will survive the Merger and continue to exist as a Delaware limited partnership (the “Merger”). The general partner interests and IDRs of VLP, and the Common Units held by VTDC and Contribution Sub, in each case that are issued and outstanding immediately prior to the Effective Time (as defined below), will be unaffected by the Merger and will remain outstanding, and no consideration will be delivered in respect thereof. Following the consummation of the Merger, VLO, as the sole ultimate parent of VLP GP, VTDC and Contribution Sub, will indirectly own all of the limited partner interests, general partner interests and IDRs of VLP. The Merger will become effective upon the filing of a properly executed certificate of merger with the Secretary of State of the State of Delaware or at such later date and time as may be agreed by VLO and VLP and set forth in the certificate of merger (the “Effective Time”).

The Merger Agreement is attached as Annex A to this information statement and is incorporated herein by reference. VLP encourages you to read the Merger Agreement carefully and in its entirety because it is the legal document that governs the Merger. For more information regarding the terms of the Merger Agreement, see “The Merger Agreement.”

The Merger Consideration

Each Common Unit issued and outstanding immediately prior to the Effective Time, other than Common Units held by VTDC and Contribution Sub (the “Public Units”), will be converted into the right to receive $42.25 in cash, without interest (the “Merger Consideration”). As of the Effective Time, (i) the Public Units will no longer be outstanding and will automatically be cancelled and cease to exist and (ii) each holder of Public Units (each, a “VLP Public Unitholder”) will cease to have rights with respect to the Public Units, except with respect to the right to receive the Merger Consideration. The Merger Consideration is subject to adjustment pursuant to the terms of the Merger Agreement to reflect the effect of any unit distribution, subdivision, reclassification, recapitalization, split, split-up, combination, exchange of units or similar transaction and to provide the VLP Common Unitholders (as defined below) the same economic effect as contemplated by the Merger Agreement prior to any such event.

All of the limited liability company interests in Merger Sub issued and outstanding immediately prior to the Effective Time will be cancelled and cease to exist, and no consideration will be delivered in respect thereof. The general partner interest and IDRs of VLP that are issued and outstanding immediately prior to the Effective Time will be unaffected by the Merger and will remain outstanding, and no consideration will be delivered in respect thereof. The Common Units owned by VTDC and Contribution Sub that are issued and outstanding immediately prior to the Effective Time will be unaffected by the Merger and will remain outstanding, and no consideration will be delivered in respect thereof. While not part of the Merger Consideration, on October 18, 2018, the VLP GP Board declared a quarterly cash distribution of $0.551 per Common Unit for the third quarter of 2018 (the “Third Quarter Distribution”), payable on November 9, 2018 to holders of Common Units (“VLP Common Unitholders”) of record at the close of business on November 1, 2018. Under the Merger Agreement, however, prior to the closing of the Merger Transactions, VLP GP may not declare, and VLP may not pay, any distribution other than the Third Quarter Distribution unless VLO consents to such distribution in writing. VLO is under no obligation to consent to any distributions other than the Third Quarter Distribution.

For more information regarding the terms of the Merger Consideration, see “The Merger Agreement—The Merger Consideration” and “The Merger Agreement—Treatment of VLP Incentive Compensation Plan and Restricted Units.”

Effects of the Merger

If the Merger is completed, (i) the VLP Public Unitholders will no longer have an equity interest in VLP, (ii) the Common Units will no longer be listed on the NYSE, (iii) the Common Units will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as promptly as practicable following

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the Effective Time and (iv) VLO, as the sole ultimate parent of VLP GP, VTDC and Contribution Sub, will indirectly own all of the limited partner interests, general partner interests and IDRs of VLP. For more information regarding the effects of the Merger, see “Special Factors—Effects of the Merger” and “The Merger Agreement—The Merger.”

Information About the Action by Written Consent

Required Unitholder Approval

Under the applicable provisions of the First Amended and Restated Agreement of Limited Partnership of VLP dated as of December 16, 2013, as amended by Amendment No. 1 thereto dated as of December 19, 2017 (as amended, modified or supplemented from time to time, the “VLP Partnership Agreement”), the approval of the Merger Agreement requires the approval of a “Unit Majority” which means at least a majority of the outstanding Common Units (the “VLP Unitholder Approval”).

As of November 8, 2018, following the Contribution, VTDC directly owned approximately 65.5% of the outstanding Common Units and Contribution Sub, its wholly owned subsidiary, directly owned approximately 2% of the outstanding Common Units. Consequently, VTDC and Contribution Sub own a sufficient number of Common Units to approve the Merger Agreement and the Merger Transactions on behalf of the VLP Common Unitholders. Concurrently with the execution of the Merger Agreement on October 18, 2018, VLP entered into a support agreement with VTDC (the “Support Agreement” and, together with the Merger Agreement and all exhibits, annexes and schedules to such agreements, the “Transaction Documents”) whereby VTDC has agreed, in its capacity as a VLP Common Unitholder, to deliver (or cause to be delivered) a written consent approving the Merger Agreement and the Merger Transactions (the “VTDC Written Consent”). On November 8, 2018, Contribution Sub executed and delivered to VLP a counterpart to the Support Agreement pursuant to which Contribution Sub is bound by all of the terms and provisions of the Support Agreement, as if Contribution Sub were an original party to the agreement.

Immediately prior to the closing of the Merger Transactions, VTDC will deliver to VLP the VTDC Written Consent and, as the sole member of Contribution Sub, cause Contribution Sub to deliver a written consent covering the Common Units owned of record by Contribution Sub that approves the Merger Agreement and the Merger Transactions (the “Contribution Sub Written Consent” and, together with the VTDC Written Consent, the “Written Consents”). As a result, VLP has not solicited and is not soliciting your approval of the Merger Agreement or the Merger Transactions. Further, VLP does not intend to call a meeting of VLP Common Unitholders for purposes of voting on the approval of the Merger Agreement or the Merger Transactions.

For more information regarding the VLP Unitholder Approval, see “The Merger Agreement—VLP Unitholder Approval.”

Recommendation of the VLP GP Board and the VLP GP Committee

On October 18, 2018, the conflicts committee (the “VLP GP Committee”) of the VLP GP Board, consisting of three independent directors, unanimously, and in good faith, (i) determined that the Merger Agreement, the Support Agreement and the Merger Transactions are (A) fair and reasonable to the unaffiliated holders of outstanding Common Units (the “VLP Unaffiliated Unitholders”) and (B) in the best interest of VLP, (ii) approved the Merger Agreement, the Support Agreement and the Merger Transactions, (iii) recommended that the VLP GP Board approve the Merger Agreement, the Support Agreement, the execution, delivery and performance of the Merger Agreement and the Support Agreement and the consummation of the Merger Transactions and (iv) recommended that the VLP GP Board submit the Merger Agreement to a vote of VLP’s limited partners by written consent and recommend the approval of the Merger Agreement and the Merger by VLP’s limited partners, such action by the VLP GP Committee described in clauses (i)(B) and (ii) above constituting “Special Approval” (as such term is defined in the VLP Partnership Agreement). The VLP GP Committee consulted with its financial and legal advisors and considered many factors in making its determinations, approvals and recommendations.

Upon receipt of the recommendation of the VLP GP Committee (and the approval of VLP GP’s sole member), at a meeting duly called and held on October 18, 2018, the VLP GP Board unanimously, and in good faith, (i) determined that each of the Merger Agreement, the Support Agreement and the Merger Transactions is (A) fair and reasonable to the VLP Unaffiliated Unitholders and (B) in the best interest of VLP, (ii) approved the

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Merger Agreement, the Support Agreement, the execution, delivery and performance of the Merger Agreement and the Support Agreement and the consummation of the Merger Transactions, (iii) resolved and directed that the Merger Agreement and the Merger be submitted to a vote of VLP’s limited partners by written consent (and authorized VLP’s limited partners to act by written consent without a meeting in connection with the approval of the Merger Agreement and the Merger) and (iv) recommended approval of the Merger Agreement and the Merger by VLP’s limited partners.

See “Special Factors—Recommendation of the VLP GP Committee and the VLP GP Board; Reasons for Recommending Approval of the Merger Agreement and the Merger Transactions.”

Opinion of Jefferies LLC, Financial Advisor to the VLP GP Committee

In September 2018, the VLP GP Committee retained Jefferies LLC (“Jefferies”) to act as the VLP GP Committee’s financial advisor in connection with certain potential strategic transactions, including providing the VLP GP Committee with (i) financial advice and assistance in connection with such transactions and (ii) an opinion, from a financial point of view, as to the fairness of such transactions. At a meeting of the VLP GP Committee on October 18, 2018, Jefferies rendered its opinion, to the effect that, as of that date and based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken as set forth in its opinion, the Merger Consideration to be received by the VLP Unaffiliated Unitholders pursuant to the Merger Agreement was fair, from a financial point of view, to VLP and the VLP Unaffiliated Unitholders, as more fully described in the section of this information statement entitled “Special Factors—Opinion of Jefferies LLC, Financial Advisor to the VLP GP Committee.”

The full text of the Partnership Fairness Opinion (as defined in the Merger Agreement) of Jefferies, dated as of October 18, 2018, is attached as Annex C to this information statement. Jefferies’ opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Jefferies in rendering its opinion. VLP encourages you to read Jefferies’ opinion carefully and in its entirety. Jefferies’ opinion was directed to the VLP GP Committee (in its capacity as such) and addresses only the fairness, from a financial point of view, of the Merger Consideration to be received by the VLP Unaffiliated Unitholders pursuant to the Merger Agreement, to VLP and to the VLP Unaffiliated Unitholders. It does not address the relative merits of the transactions contemplated by the Merger Agreement as compared to any alternative transaction or opportunity that might be available to VLP, nor does it address the underlying business decision by VLO or VLP GP to engage in the Merger or the terms of the Merger Agreement or the documents referred to therein. Jefferies’ opinion does not constitute a recommendation as to how any VLP Common Unitholder should vote on the Merger or any matter related thereto.

Support Agreement

On October 18, 2018, VLP and VTDC (after receiving the approval by written consent of its sole director on that same day) entered into the Support Agreement, pursuant to which, among other things, VTDC has agreed, in its capacity as a VLP Common Unitholder, to deliver the VTDC Written Consent. Under the Support Agreement, VTDC has also agreed that it will not transfer any of its Common Units except to VLO and certain of its subsidiaries; provided, however, that any such transferee must have executed and delivered to VLP a counterpart to the Support Agreement pursuant to which such transferee will agree to be bound by all of the terms and provisions of the Support Agreement, as if such transferee were an original party to the agreement. On November 8, 2018, for U.S. tax purposes, VTDC and Contribution Sub effected the Contribution and simultaneously therewith Contribution Sub executed and delivered to VLP a counterpart to the Support Agreement pursuant to which Contribution Sub is bound by all of the terms and provisions of the Support Agreement, as if Contribution Sub were an original party to the agreement. As the sole member of Contribution Sub, VTDC will cause Contribution Sub to deliver, simultaneously with the VTDC Written Consent, the Contribution Sub Written Consent.

The Support Agreement will terminate upon the earliest of (i) the Effective Time, (ii) the termination of the Merger Agreement, (iii) the election of VTDC in the event of a VLP Adverse Recommendation Change (as defined below) and (iv) the mutual written agreement of VTDC and VLP. The full text of the Support Agreement is attached as Annex B to this information statement. VLP encourages you to read the Support Agreement carefully and in its entirety.

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VLO Special Committee and the VLO Board

On September 20, 2018, the board of directors of VLO (the “VLO Board”) formed a special committee consisting of VLO Board members who do not own any Common Units (the “VLO Special Committee”) and authorized and empowered, and delegated full power, authority and responsibility to, the VLO Special Committee, for and on behalf of the full VLO Board and VLO, to, among other things, review, evaluate and negotiate and determine whether to approve the Merger Transactions, for and on behalf of the VLO Board and VLO.

On October 18, 2018, the VLO Special Committee, (i) declared the Merger Agreement to be advisable, (ii) determined that the Merger Agreement and the Merger Transactions are fair and reasonable to the VLP Unaffiliated Unitholders, and in the best interest of VLO and its stockholders and (iii) approved the Merger Agreement and the Merger Transactions and the execution, delivery and performance of the Merger Agreement and the consummation of the Merger Transactions.

Interests of Certain Persons in the Merger

In reading this information statement, VLP Unaffiliated Unitholders should be aware that certain of the executive officers and directors of VLP GP have interests in the Merger that differ from, or are in addition to, the interests of the VLP Unaffiliated Unitholders generally, including:

each member of the VLP GP Committee holds restricted units (“Restricted Units”), and corresponding distribution equivalent rights (“DERs”), in VLP, and immediately prior to the Effective Time of the Merger, (i) the Restricted Units then outstanding will receive immediate and full acceleration of vesting and be entitled to receive the Merger Consideration along with any corresponding accrued but unpaid distributions with respect to the DERs related to any Restricted Units and (ii) the DERs associated therewith will be cancelled and cease to exist;
all of the directors and executive officers of VLP GP, some of whom are also directors and/or officers of VLO, own Common Units that will be cancelled at the Effective Time of the Merger and converted into the right to receive the Merger Consideration;
each member of the VLP GP Committee will be reimbursed for out-of-pocket expenses incurred in connection with attending meetings of the VLP GP Committee and the VLP GP Board, in addition to any other compensation they receive for service on the VLP GP Board and its committees; and
from and after the Effective Time, all of the directors and executive officers of VLP GP will receive continued indemnification for their actions as directors and executive officers for at least six years after the Effective Time of the Merger.

These arrangements are more fully described under “Special Factors—Interests of Certain Persons in the Merger.”

Regulatory Approvals Required for the Merger

None of VLP, VLP GP or any of the Valero Parties (as defined below) is aware of any federal or state regulatory approval required in connection with the Merger, other than compliance with applicable federal securities laws and applicable Delaware law. See “Special Factors—Regulatory Approvals Required for the Merger.”

Conditions to Completion of the Merger

The obligation of the parties to the Merger Agreement to complete the Merger is subject to the satisfaction or waiver of certain conditions, including:

with respect to each party’s obligation to effect the Merger, (i) the Written Consents providing VLP Unitholder Approval having been obtained, (ii) the absence of any legal restraint or prohibition enjoining or otherwise prohibiting the consummation of the Merger Transactions or making the consummation of the Merger Transactions illegal, (iii) the termination or expiration of any waiting period under any applicable antitrust law and (iv) the clearance of this information statement by the Securities and Exchange Commission (the “SEC”) and the mailing of a definitive information statement to VLP Common Unitholders at least 20 days prior to the date of the Written Consents;

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with respect to VLO’s and Merger Sub’s obligation to effect the Merger, (i) the representations and warranties of VLP and VLP GP being true and correct as of the closing as though made on the closing date, unless otherwise specified, subject to certain materiality qualifications, (ii) the performance by VLP and VLP GP of their respective covenants and obligations under the Merger Agreement, subject to certain materiality qualifications, (iii) the receipt by VLO of an officer’s certificate signed on behalf of VLP and VLP GP by an executive officer of VLP GP certifying that the two preceding conditions have been satisfied and (iv) the absence of a material adverse effect with respect to VLP; and
with respect to VLP’s and VLP GP’s obligation to effect the Merger, (i) the representations and warranties of VLO and Merger Sub being true and correct as of the closing as though made on the closing date, unless otherwise specified, subject to certain materiality qualifications, (ii) the performance by VLO and Merger Sub of their respective covenants and obligations under the Merger Agreement, subject to certain materiality qualifications and (iii) the receipt by VLP of an officer’s certificate signed on behalf of VLO by an executive officer of VLO certifying that the two preceding conditions have been satisfied.

VLP can give no assurance when or if all of the conditions to the Merger will be satisfied or, to the extent possible, waived, or that the Merger will be consummated. For more information, see “The Merger Agreement—Conditions to Completion of the Merger.”

Termination of the Merger Agreement

The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the Written Consents are delivered (unless specifically indicated otherwise):

by the mutual written consent of VLP and VLO duly authorized by the VLP GP Board, after consulting with the VLP GP Committee (in the case of VLP), and the VLO Special Committee (in the case of VLO);
by either VLP (duly authorized by the VLP GP Board after consulting with the VLP GP Committee) or VLO, if:
the closing of the Merger does not occur on or before July 18, 2019 (the “Outside Date”), except that the right to terminate the Merger Agreement in this situation will not be available (i) to VLP if the failure to satisfy such condition is due to the failure of either VLP or VLP GP to perform and comply in all material respects with the covenants and agreements in the Merger Agreement to be performed or complied with by it before the closing of the Merger, (ii) to VLO if the failure to satisfy such condition is due to the failure of any of VLO, Merger Sub or VTDC to perform and comply in all material respects with the covenants and agreements contained in the Merger Agreement or the Support Agreement, as applicable, to be performed or complied with by it before the closing of the Merger or (iii) to VLP or VLO if, in the case of VLO, VLP or VLP GP, and in the case of VLP, VLO or Merger Sub, has filed (and is then pursuing) an action seeking specific performance as permitted under the terms of the Merger Agreement; or
any restraint is in effect and has become final and nonappealable that has the effect of enjoining, restraining, preventing or prohibiting the consummation of the Merger Transactions or making the consummation of the Merger Transactions illegal, except that the right to terminate the Merger Agreement will not be available to VLP or VLO if the restraint was due to the failure of, in the case of VLP, VLP or VLP GP, and in the case of VLO, VLO, Merger Sub or VTDC, to perform in all material respects any of its obligations under the Merger Agreement or the Support Agreement, as applicable;
by VLO, if:
prior to the Written Consents being delivered and becoming effective, VLP is in willful breach of its obligations to (i) submit (through the VLP GP Board) the Merger Agreement and the Merger to a vote of VLP’s limited partners by written consent, and, unless such omission is permitted under the terms of the Merger Agreement, recommend to VLP’s limited partners approval of the Merger Agreement and the Merger (the “VLP GP Board Recommendation”), (ii) include (x) a copy of the

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Partnership Fairness Opinion (as defined in the Merger Agreement) and, (y) unless such omission is permitted under the terms of the Merger Agreement, the VLP GP Board Recommendation, in this information statement, (iii) not solicit competing acquisition proposals or enter into discussions concerning, or provide confidential information in connection with, any unsolicited alternative business combinations, (iv) make certain recommendations against any competing acquisition proposal and reaffirm the VLP GP Board Recommendation, and not approve or adopt, or propose to approve or adopt, any competing acquisition proposal and (v) not withdraw, modify or qualify, or propose to withdraw, modify or qualify, in a manner adverse to VLO, the VLP GP Board Recommendation, unless permitted under the terms of the Merger Agreement (the failure to take the action described in clauses (ii)(y) or (iv), or the taking of the actions described in clause (v), as further described under “The Merger Agreement—VLP GP Recommendation and VLP Adverse Recommendation Change,” being referred to as a “VLP Adverse Recommendation Change”); provided, however, that VLO will not have the right to terminate the Merger Agreement under this condition if VLO, Merger Sub or VTDC is then in material breach of any of its representations, warranties, covenants or agreements contained in the Merger Agreement or the Support Agreement, as applicable;

VLP or VLP GP has breached or failed to perform any of its representations, warranties, covenants or agreements contained in the Merger Agreement (or if any of the representations or warranties of VLP or VLP GP in the Merger Agreement fail to be true), if the breach or failure to perform (i) would constitute the failure of a condition to VLO’s obligation to complete the Merger and (ii) is not capable of being cured, or is not cured, by VLP or VLP GP within the earlier of (A) 30 days after receipt of notice from VLO of such breach or failure or (B) the Outside Date; provided, however, that VLO will not have the right to terminate the Merger Agreement under this condition if VLO, Merger Sub or VTDC is then in material breach of any of its representations, warranties, covenants or agreements contained in the Merger Agreement or the Support Agreement, as applicable; or
a VLP Adverse Recommendation Change has occurred;
by VLP (duly authorized by the VLP GP Board), if:
(after consulting with the VLP GP Committee) VLO or Merger Sub has breached or failed to perform any of its representations, warranties, covenants or agreements contained in the Merger Agreement (or if any of VLO’s or Merger Sub’s representations or warranties contained in the Merger Agreement fails to be true) and such breach or failure would (i) constitute the failure of a condition of VLP’s obligation to complete the Merger and (ii) is not capable of being cured, or is not cured, by VLO or Merger Sub within the earlier of (A) 30 days after receipt of notice from VLP of such breach or failure or (B) the Outside Date; provided, however, that VLP will not have the right to terminate the Merger Agreement if VLP or VLP GP is then in material breach of any of its representations, warranties, covenants or agreements contained in the Merger Agreement; or
prior to the Written Consents being delivered and becoming effective, in response to an Intervening Event (as defined in the Merger Agreement), the VLP GP Board determines in good faith (after consultation with the VLP GP Committee) that the failure to take such action would be a breach of its duties to the VLP Unaffiliated Unitholders under applicable law, as modified by the VLP Partnership Agreement, or the VLP Partnership Agreement; provided, however, that before the VLP GP Board can terminate the Merger Agreement under this condition, it must give VLO at least five business days’ notice (or as much notice as possible if the Merger is scheduled to close before such five business day period) and negotiate with VLO (to the extent VLO wishes to negotiate) in good faith in order to amend the Merger Agreement so that the failure to terminate the Merger Agreement would not be a breach of the VLP GP Board’s duties to the VLP Unaffiliated Unitholders under applicable law, as modified by the VLP Partnership Agreement, or the VLP Partnership Agreement.

For more information regarding the termination of the Merger Agreement, see “The Merger Agreement—Termination.”

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Effect of Termination; Remedies

In the event of termination of the Merger Agreement as summarized above under “—Termination of the Merger Agreement,” the Merger Agreement will terminate and become null and void (other than certain provisions relating to, among other things, fees and expenses and litigation related to the Merger Transactions) and there will be no liability on the part of any of VLO, Merger Sub, VLP or VLP GP, or their respective directors, officers and affiliates, to the other parties to the Merger Agreement; provided, however, that (i) no such termination will relieve liability for failure to consummate the Merger and the Merger Transactions when required pursuant to the Merger Agreement and (ii) in the event of an intentional and material breach of the Merger Agreement or intentional fraud, the other applicable party or parties will be entitled to pursue any and all legally available remedies, including equitable relief, and to seek recovery of all losses, liabilities, damages, costs and expenses of every kind and nature (including reasonable attorneys’ fees and time value of money).

For more information regarding the effect of termination and remedies, see “The Merger Agreement—Effect of Termination; Remedies.”

Financing of the Merger

The total amount of funds necessary for VLO to consummate the Merger and the related transactions, excluding expenses related thereto, is anticipated to be approximately $950 million. VLO expects to fund the Merger with a combination of cash on hand and/or borrowings under its revolving credit facility.

See “Special Factors—Financing of the Merger” and “Special Factors—Estimated Fees and Expenses.”

Expenses Relating to the Merger

Under the terms of the Merger Agreement, all expenses will generally be borne by the party incurring such expenses, whether or not the Merger Transactions are consummated, except that (i) VLO and VLP will each pay one half of the expenses, other than the expenses of financial advisors or outside legal advisors, incurred in connection with the preparation, printing, filing and mailing of this information statement and the SEC Rule 13e-3 transaction statement on Schedule 13E-3 (“Schedule 13E-3”) which is required because the Merger is a “going private” transaction under SEC rules, and any amendments or supplements hereto or thereto and (ii) the attorneys’ fees discussed above under “—Effect of Termination; Remedies.”

For more information regarding the estimated fees and expenses associated with the Merger, see “Special Factors—Estimated Fees and Expenses.”

Material U.S. Federal Income Tax Considerations

For U.S. federal income tax purposes, the receipt of cash in exchange for Common Units pursuant to the Merger will be a taxable transaction to the VLP Common Unitholders. A VLP Common Unitholder who receives cash in exchange for Common Units pursuant to the Merger Agreement will recognize gain or loss in an amount equal to the difference between:

the sum of (i) the amount of any cash received by the VLP Common Unitholder and (ii) such VLP Common Unitholder’s share of VLP’s nonrecourse liabilities immediately prior to the Merger; and
such VLP Common Unitholder’s adjusted tax basis for Common Units (which includes such VLP Common Unitholder’s share of VLP’s nonrecourse liabilities immediately prior to the Merger).

Except as noted in “Material U.S. Federal Income Tax Considerations” below, gain or loss recognized by a VLP Common Unitholder on the sale or exchange of a Common Unit will generally be taxable as capital gain or loss. However, a portion of this gain or loss, which could be substantial, will be separately computed and taxed as ordinary income or loss under Section 751 of the Internal Revenue Code of 1986, as amended (the “Code”), to the extent attributable to assets giving rise to “unrealized receivables,” including depreciation recapture, or to substantially appreciated “inventory items” owned by VLP and its subsidiaries. Passive losses that were not deductible by a VLP Common Unitholder in prior taxable periods because they exceeded such VLP Common Unitholder’s share of VLP’s income may become available to offset a portion of the gain recognized by such VLP Common Unitholder.

The U.S. federal income tax consequences of the Merger to a VLP Common Unitholder will depend on such VLP Common Unitholder’s own personal tax situation. Accordingly, we strongly urge you to consult your tax advisor for a full understanding of the particular tax consequences of the Merger to you.

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See “Material U.S. Federal Income Tax Considerations” for a more complete discussion of certain U.S. federal income tax consequences of the Merger.

No Appraisal Rights

VLP Common Unitholders are not entitled to dissenters’ rights of appraisal under the VLP Partnership Agreement, the Merger Agreement or applicable Delaware law. See “Special Factors—No Appraisal Rights.”

Accounting Treatment

The Merger will be accounted for in accordance with generally accepted accounting principles in the U.S. (“GAAP”). Because VLO has a controlling financial interest in VLP before the Merger (through its indirect ownership of VLP GP, VTDC and Contribution Sub) and will retain the controlling financial interest in VLP after the Merger, changes in VLO’s ownership interest in VLP will be accounted for as an equity transaction. Accordingly, no gain or loss on the Merger will be recognized in VLO’s consolidated statements of earnings. See “Special Factors—Accounting Treatment of the Merger.”

Delisting and Deregistration of Common Units

Upon completion of the Merger, the Common Units will cease to be listed on the NYSE and, as promptly as practicable after the Effective Time, will be deregistered under the Exchange Act. See “Delisting and Deregistration of Common Units.”

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QUESTIONS AND ANSWERS ABOUT THE MERGER

Q:Why am I receiving these materials?
A:This information statement describes the Merger and the approval of the Merger Agreement and the Merger Transactions by written consent of certain VLP Common Unitholders. The VLP GP Board is providing this information statement to you pursuant to Section 14(c) of the Exchange Act solely to inform you of, and provide you with information about, the Merger and the Merger Transactions before the Merger is consummated. This information statement is first being mailed to VLP Common Unitholders on or about,                2018.
Q:Why am I not being asked to vote on the Merger?
A:Consummation of the Merger requires VLP Unitholder Approval. VTDC and Contribution Sub collectively own approximately 67.5% of the outstanding Common Units, a sufficient number to approve the Merger Agreement and the Merger Transactions on behalf of the VLP Common Unitholders. Concurrently with the execution of the Merger Agreement, VTDC and VLP entered into the Support Agreement whereby VTDC has agreed to deliver (or cause to be delivered) the VTDC Written Consent approving the Merger Agreement and the Merger Transactions. On November 8, 2018, VTDC and Contribution Sub consummated the Contribution and simultaneously therewith Contribution Sub executed and delivered to VLP a counterpart to the Support Agreement pursuant to which Contribution Sub is bound by all of the terms and provisions of the Support Agreement, as if Contribution Sub were an original party to the agreement. Immediately prior to the closing of the Merger Transactions, VTDC will deliver to VLP the VTDC Written Consent and, as the sole member of Contribution Sub, cause Contribution Sub to deliver the Contribution Sub Written Consent, each approving the Merger Agreement and the Merger Transactions. As a result, VLP has not solicited and is not soliciting your approval of the Merger Agreement or Merger Transactions, and does not intend to call a meeting of VLP Common Unitholders to approve the Merger Agreement or the Merger Transactions. See “The Merger Agreement—VLP Unitholder Approval.”
Q:What will happen in the Merger?
A:Merger Sub will merge with and into VLP, with VLP surviving the Merger and continuing to exist as a Delaware limited partnership and each Public Unit will be converted into the right to receive $42.25 in cash, without interest. See “Special Factors—Effects of the Merger.”
Q:What will I, as a VLP Common Unitholder, receive if the Merger is completed?
A:Upon completion of the Merger, you will be entitled to receive $42.25 per Common Unit in cash, without interest, less any applicable withholding taxes. See “The Merger Agreement—The Merger Consideration.”
Q:Will VLP continue to pay quarterly distributions?
A:While not part of the Merger Consideration, on October 18, 2018, the VLP GP Board declared the Third Quarter Distribution of $0.551 per Common Unit, payable on November 9, 2018 to VLP Common Unitholders of record at the close of business on November 1, 2018. Under the Merger Agreement, however, prior to the closing of the Merger Transactions, VLP GP may not declare, and VLP may not pay, any distribution other than the Third Quarter Distribution unless VLO consents to such distribution in writing. VLO is under no obligation to consent to any distributions other than the Third Quarter Distribution. See “The Merger Agreement—Distributions.”
Q:What will holders of VLP equity incentive awards receive in the Merger?
A:VLP GP has previously only awarded equity incentive awards in VLP to VLP’s independent directors pursuant to the Valero Energy Partners LP 2013 Incentive Compensation Plan (the “VLP Incentive Compensation Plan”), which awards are in the form of Restricted Units, along with corresponding DERs, that typically vest in annual one-third increments over a three-year period. Immediately prior to the Effective Time, (i) all Restricted Units then outstanding will receive immediate and full acceleration of

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vesting and be entitled to receive the Merger Consideration along with any corresponding accrued but unpaid distributions with respect to the DERs related to any Restricted Units and (ii) the DERs associated therewith will be cancelled and cease to exist. See “Special Factors—Interests of Certain Persons in the Merger.”

Q:How does the $42.25 per unit Merger Consideration compare to the market price of the Common Units prior to the execution of the Merger Agreement?
A:The $42.25 per unit Merger Consideration represents a premium of approximately 12% to the 30 trading-day volume weighted average price (“VWAP”) of the Common Units as of October 17, 2018, the second to last trading day prior to the public announcement of the Merger Agreement and the Merger Transactions. The $42.25 per unit Merger Consideration is above the closing price of the Common Units as of October 17, 2018 and October 18, 2018. See “Common Unit Market Price and Distribution Information—Common Unit Market Price Information.”
Q:Why does the VLP GP Board recommend that VLP Common Unitholders approve the Merger Agreement and the Merger Transactions?
A:The VLP GP Board considered a number of factors in making its determination and approvals and the related recommendation to VLP Common Unitholders. The factors considered by the VLP GP Board to be generally positive or favorable include, but are not limited to, the following:
the unanimous determination and recommendation of the VLP GP Committee;
receipt by the VLP GP Committee of the Partnership Fairness Opinion (as defined in the Merger Agreement) of Jefferies, dated October 18, 2018, that based upon and subject to the factors, procedures, assumptions, qualifications, limitations and other matters set forth therein, as of October 18, 2018, the $42.25 per unit Merger Consideration to be received by the VLP Unaffiliated Unitholders in connection with the Merger was fair, from a financial point of view, to VLP and the VLP Unaffiliated Unitholders;
the Merger will provide the VLP Unaffiliated Unitholders with Merger Consideration of $42.25 per Common Unit, a price the VLP GP Committee viewed as fair in light of the premium offered, VLP’s recent and projected financial performance and uncertainty around the growth strategy with respect to VLP. The Merger Consideration represents a premium of approximately 12% to the VWAP of the Common Units for the 30 consecutive NYSE full trading days ending at the close of regular trading hours on the NYSE on October 17, 2018;
the Merger Consideration of $42.25 per Common Unit represents an approximate 5.6% increase from the $40.00 per Common Unit offered by VLO in its Initial Proposal (as defined below) submitted to the VLP GP Board on September 21, 2018;
the VLP GP Committee’s belief that VLO’s offer of the Merger Consideration of $42.25 per Common Unit was likely the highest price VLO would be willing to pay at the time of the VLP GP Committee’s determination and approval;
the VLP GP Board’s belief that, under the status quo, it was unlikely that (i) VLO would continue to fund asset drop-downs to VLP through subordinated loans or Common Unit acquisitions and (ii) VLP would be able to self-fund its growth through the equity capital markets or otherwise on attractive terms; and
the VLP GP Committee’s belief that it was unlikely that any other transaction with a third party involving a sale of VLP or a significant interest in VLP or its assets could be consummated at the time of the VLP GP Committee’s determination and approval in light of VLO’s stated position when it delivered the Initial Proposal (and throughout its negotiations with the VLP GP Committee) that it was only interested in acquiring all of the outstanding Common Units owned by the VLP Public Unitholders and had no interest in approving any combination of VLP with, or a sale of all or substantially all of the assets of VLP to, any other acquirer.

For a full list of the factors considered by the VLP GP Board and the VLP GP Committee, see “Special Factors—Recommendation of the VLP GP Committee and the VLP GP Board; Reasons for Recommending Approval of the Merger Agreement and the Merger Transactions.”

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Q:When do you expect the Merger to be completed?
A:VLO and VLP expect the Merger will close as soon as possible following the satisfaction of certain customary closing conditions, which the parties are diligently working towards completing. See “The Merger Agreement—Effective Time; Closing.”
Q:What if the Merger is not completed?
A:If the Merger is not completed because the closing conditions are not satisfied or waived, you will not receive any consideration for your Common Units in connection with the Merger. Instead, VLP will remain a publicly traded MLP, and the Common Units will continue to be listed and traded on the NYSE.
Q:What conditions must be satisfied to complete the Merger?
A:VLO and VLP are not required to complete the Merger unless a number of conditions are satisfied or waived. These conditions include, among others, the receipt of the Written Consents providing VLP Unitholder Approval of the Merger Agreement and the Merger Transactions. As of the date of this information statement, VTDC and Contribution Sub collectively own approximately 67.5% of the Common Units, a sufficient number to approve the Merger Agreement and the Merger Transactions on behalf of the VLP Common Unitholders. Concurrently with the execution of the Merger Agreement, VLP and VTDC entered into the Support Agreement pursuant to which VTDC has agreed to deliver (or cause to be delivered) the VTDC Written Consent approving the Merger Agreement and the Merger Transactions. On November 8, 2018, VTDC and Contribution Sub consummated the Contribution and simultaneously therewith Contribution Sub executed and delivered to VLP a counterpart to the Support Agreement pursuant to which Contribution Sub is bound by all of the terms and provisions of the Support Agreement, as if Contribution Sub were an original party to the agreement. Immediately prior to the closing of the Merger Transactions, VTDC will deliver the VTDC Written Consent, and, as the sole member of Contribution Sub, cause Contribution Sub to deliver the Contribution Sub Written Consent, each approving the Merger Agreement and the Merger Transactions, which will satisfy the condition of the receipt of VLP Unitholder Approval of the Merger Agreement and the Merger Transactions.

For a more complete summary of the conditions that must be satisfied or waived prior to the completion of the Merger, see “The Merger Agreement—Conditions to Completion of the Merger.”

Q:Why is no vote required if VLP Unitholder Approval is required to approve of the Merger Agreement and the Merger Transactions?
A:Approval of the Merger Agreement and the Merger Transactions requires VLP Unitholder Approval. The VLP Partnership Agreement permits voting by written consent. VTDC and Contribution Sub collectively own approximately 67.5% of the outstanding Common Units, a sufficient number to approve the Merger Agreement and the Merger Transactions. Pursuant to the Support Agreement, and a counterpart thereto pursuant to which Contribution Sub is bound by all of the terms and provisions of the Support Agreement, as if Contribution Sub were an original party to the agreement, VTDC will execute and deliver the VTDC Written Consent, and, as the sole member of Contribution Sub, cause Contribution Sub to execute and deliver the Contribution Sub Written Consent, immediately prior to the closing of the Merger Transactions, approving the Merger Agreement and the Merger Transactions, which Written Consents will constitute VLP Unitholder Approval. See “The Merger Agreement—VLP Unitholder Approval.”
Q:Will VLP, through the VLP GP Board, be required to submit the Merger Agreement and the Merger to a vote by the VLP Common Unitholders by written consent even if the VLP GP Board has made a VLP Adverse Recommendation Change?
A:Yes. Unless the Merger Agreement is terminated, VLP is required to submit the Merger Agreement and the Merger to a vote by the VLP Common Unitholders by written consent regardless of whether the VLP GP Board recommends that the VLP Common Unitholders reject the Merger Agreement and the Merger or otherwise takes any action constituting a VLP Adverse Recommendation Change under the Merger Agreement.

For more information regarding the ability of VLP to terminate the Merger Agreement, and the VLP GP Board’s ability to change its recommendation with respect to the Merger Agreement and the Merger, see “The Merger Agreement—Termination” and “The Merger Agreement—VLP GP Recommendation and VLP Adverse Recommendation Change.”

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Q:What do I need to do now?
A:No action by you is requested or required at this time. If the Merger is consummated, you will receive instructions regarding the surrender of, and payment of the Merger Consideration for, your Common Units. See “The Merger Agreement—Surrender of Common Units.”
Q:What happens if I sell my Common Units before the Effective Time?
A:If you transfer your Common Units before the Effective Time, you will transfer the right to receive the per unit Merger Consideration, if the Merger is consummated, to the person to whom you transfer your Common Units. See “The Merger Agreement—The Merger Consideration.”
Q:How will I receive the per unit Merger Consideration to which I am entitled?
A:Promptly after the Effective Time, the paying agent (who will be appointed by VLO prior to the closing of the Merger and will be reasonably acceptable to VLP) will mail or provide to each VLP Common Unitholder of record certain transmittal materials and instructions for use in effecting the surrender of Common Units to the paying agent. VLP does not have certificated Common Units as of the date of this information statement. As such, your Common Units are held in “street name” through a bank, brokerage firm or other nominee, and you should contact your bank, brokerage firm or other nominee for instructions as to how to effect the surrender of your “street name” Common Units in exchange for the per unit Merger Consideration. In the event that unit certificates are issued to you after the date of this information statement, please do not send such certificates to the paying agent until you receive the transmittal materials and instructions for use in effecting the surrender of Common Units to the paying agent. See “The Merger Agreement—Surrender of Common Units.”
Q:Am I entitled to appraisal or dissenters’ rights?
A:No. VLP Common Unitholders are not entitled to dissenters’ rights of appraisal under the VLP Partnership Agreement, the Merger Agreement or applicable Delaware law. See “Special Factors—No Appraisal Rights.”
Q:What are the expected U.S. federal income tax consequences to VLP Common Unitholders as a result of the Merger?
A:The receipt of cash in exchange for Common Units pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. VLP Common Unitholders will generally recognize capital gain or loss on the receipt of cash in exchange for Common Units. However, a portion of this gain or loss, which could be substantial, will be separately computed and taxed as ordinary income or loss to the extent attributable to assets giving rise to “unrealized receivables,” including depreciation recapture, or to “inventory items” owned by VLP and its subsidiaries. Passive losses that were not deductible by a VLP Common Unitholder in prior taxable periods because they exceeded a VLP Common Unitholder’s share of VLP’s income may become available to offset a portion of the gain recognized by such VLP Common Unitholder. The U.S. federal income tax consequences of the Merger to a VLP Common Unitholder will depend on such VLP Common Unitholder’s own personal tax situation. Accordingly, we strongly urge you to consult your tax advisor for a full understanding of the particular tax consequences of the Merger to you. See “Material U.S. Federal Income Tax Considerations” for a more complete discussion of certain U.S. federal income tax consequences of the Merger.
Q:What is “householding”?
A:The SEC has adopted rules that permit companies and intermediaries (such as brokers or banks) to satisfy the delivery requirements for information statements with respect to two or more security holders sharing the same address by delivering a single notice or information statement addressed to those security holders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for security holders and cost savings for companies.

Banks, brokers and other nominees with accountholders who are VLP Common Unitholders may be “householding” VLP’s information statement materials. As indicated in the notice provided by these brokers to VLP Common Unitholders, a single information statement will be delivered to multiple VLP Common

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Unitholders sharing an address unless contrary instructions have been received from an affected VLP Common Unitholder. Once you have received notice from your broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and you prefer to receive a separate information statement, please notify your broker or write to the following address:

Valero Energy Partners LP
One Valero Way
San Antonio, Texas 78249
Attention: Investor Relations
Telephone: (210) 345-2000

See “Other Matters—Householding of Materials.”

Q:Who can help answer my questions?
A:If you have any questions about the Merger or need additional copies of this information statement, you should contact VLP at the above address and phone number.

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SPECIAL FACTORS

This discussion of the Merger is qualified by reference to the Merger Agreement, which is attached as Annex A to this information statement. You should read the entire Merger Agreement carefully because it is the legal document that governs the Merger.

If the Merger is completed, the VLP Public Unitholders will have the right to receive the Merger Consideration, less any applicable withholding taxes.

Background of the Merger

The senior management teams of VLO and VLP, and the VLO Board and the VLP GP Board, regularly review operational and strategic opportunities to maximize value for their respective investors. In connection with these reviews, these management teams and boards of directors from time to time evaluate potential transactions that would further their respective strategic objectives and create value for VLO stockholders and VLP Common Unitholders, as applicable. As part of their consideration of these potential transactions, senior management of VLO and VLP continually evaluate ways to optimize cost of capital to take advantage of strategic opportunities as they arise.

As more fully described in the section entitled “Summary Term Sheet—Parties to the Merger Transactions—Relationship of the Parties to the Merger Transactions,” VLP was formed by VLO to own, operate, develop, and acquire crude oil and refined petroleum products pipelines, terminals, and other transportation and logistics assets. VLP is managed and operated by the VLP GP Board and the executive officers of VLP GP. VLO is the sole ultimate owner of VLP GP and has the right to appoint the entire VLP GP Board, including the independent directors appointed in accordance with the listing standards of the NYSE.

VLO formed VLP in 2013, in part, because of the low cost of capital afforded to MLPs at that time, which would permit VLO to fund its midstream business in a cost-efficient manner. Access to equity capital markets for MLPs has deteriorated due to various factors, resulting in a significantly higher cost of capital for VLP. Beginning in late 2017, senior management of VLO began considering various potential strategic transactions concerning VLP given the partnership was no longer able to achieve its principal goal – to be a source of low-cost capital to grow a logistics business that services VLO’s refineries. VLO senior management considered several alternatives, including third-party merger opportunities, the elimination of VLP’s IDRs, electing to be taxed as a corporation for U.S. tax purposes, fully converting to a C-corporation and various other simplification transactions undertaken by other similarly situated MLPs. VLO senior management also evaluated the status quo with respect to VLP, and VLP’s prospects under (i) a “market recovery case,” whereby it was assumed that VLP would be able to access the public equity markets and grow through asset drop-downs from VLO (the “Market Recovery Case”), and (ii) a “self-funding case,” whereby it was assumed that VLP would fund growth using excess cash only and that VLO would not continue to fund asset drop-downs to VLP through subordinated loans or Common Unit acquisitions (the “Self-Funding Case”). Over the course of these considerations, VLO senior management discussed, among other things, (i) the general inability of MLPs to access the equity capital markets and that such access was a key component in the determination to form VLP and pursue an initial public offering of its Common Units, (ii) the increased cost of capital that VLP was experiencing and (iii) investor sentiment regarding incentive distribution rights generally and the MLP governance model.

In late 2017, VLO began discussions with J.P. Morgan Securities LLC (“J.P. Morgan”) to preliminarily evaluate the financial aspects and implications of various hypothetical strategic transactions concerning VLP. Around such time, VLO also began discussions with its outside legal counsel, Baker Botts L.L.P. (“Baker Botts”), regarding various legal analyses with respect to hypothetical strategic transactions concerning VLP. J.P Morgan’s and Baker Botts’ respective analyses and discussions with VLO were exploratory in nature and were intended to help VLO develop a better understanding of the financial and legal implications of various potential transactions concerning VLP. Such discussions continued to occur periodically until early September 2018.

Throughout the course of 2017 and 2018, as many other MLPs were engaging in strategic simplification transactions, analysts and investors began to speculate on the path forward for VLP. On VLP’s second quarter earnings call on July 26, 2018, analysts posed numerous questions regarding the status of VLP’s strategic direction and its consideration of various simplification transactions, to which VLP senior management responded that VLP was evaluating all options available to VLP and did not have any further guidance. While the senior management teams of VLP and VLO did not view such earnings call as demanding an accelerated time frame in which to make a determination on the strategic direction of VLP, given the deterioration of equity capital markets

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for MLPs, the level of investor interest around the uncertainty of VLP’s future plans on such earnings call, and the trading price of the Common Units immediately thereafter, the VLO and VLP senior management teams did consider the potential costs and benefits of a prolonged evaluation of VLP’s options.

After further consideration of the relative merits and risks associated with the strategic alternatives that VLO senior management had been preliminarily evaluating (including simply maintaining the status quo with respect to VLP), VLO senior management concluded that, unless access to equity capital markets in a cost-efficient manner improved for VLP, acquiring the Public Units through a merger transaction was the best alternative for both VLO and VLP and their respective stakeholders. VLO senior management considered the various potential benefits in relation to the costs and risks associated therewith, including that such merger transaction would (i) simplify VLO’s structure and administrative burden, (ii) guarantee that VLO would maintain control over VLP’s assets, which are crucial to VLO’s operations and (iii) be accretive to VLO’s earnings per share and cash flow per share. VLO senior management viewed the costs and risks associated with such transaction to be (i) the potential tax liability associated therewith for VLP Common Unitholders, (ii) VLO’s loss of the Common Units as an acquisition currency and (iii) the loss of a public marker for the value of certain logistics assets.

On September 10, 2018, Baker Botts and J.P. Morgan participated in a telephonic meeting with VLO to discuss the decision by VLO senior management to actively pursue the potential acquisition of VLP by VLO through a merger transaction. During this discussion, VLO senior management indicated that VLO intended to hold a VLO board meeting on September 20, 2018 to approve initiating discussions with respect to such potential transaction and, if approved, to submit an initial, non-binding proposal to the VLP GP Board thereafter. While each of the other strategic alternatives considered by VLO management presented a different mix of these benefits and risks, a merger transaction was determined by VLO management to offer the greatest overall benefit in relation to the risks associated therewith.

Later on September 10, 2018, in order to facilitate planning and to reduce the risk that any scheduling, timing or other conflicts affecting the ability of the members of the VLP GP Committee to fully and diligently consider the potential merger transaction, VLO informed the VLP GP Committee, in vague, non-definitive terms, that a transaction involving VLO and VLP was being considered. On September 11, 2018, for the same reasons, Baker Botts informed representatives of Akin Gump Strauss Hauer & Feld LLP (“Akin Gump”), the VLP GP Committee’s historical and regular legal counsel, in vague, non-definitive terms, that a transaction involving VLO and VLP was being considered. On September 14, 2018, VLO formally engaged J.P. Morgan as a financial advisor in respect of a potential merger transaction involving VLP.

On September 11, 2018, Tim Fretthold, Chairman of the VLP GP Committee, contacted Jefferies and Akin Gump regarding their potential representation of the VLP GP Committee in connection with a potential transaction with VLO. On September 18, 2018, the VLP GP Committee preliminarily determined to engage Jefferies and Akin Gump, subject to completion of due diligence with respect to, among other things, Jefferies’ and Akin Gump’s independence and potential conflicts. The determination to engage Jefferies and Akin Gump on a preliminary basis was based on, among other things, their knowledge and experience with respect to public merger and acquisition transactions and VLP’s industry specifically, as well as their substantial experience advising publicly traded MLPs and other companies with respect to transactions similar to the potential merger transactions.

On September 20, 2018, the VLO Board held a meeting where VLO senior management and the VLO Board discussed the costs and benefits associated with the various strategic alternatives that VLO senior management had considered, including maintaining the status quo with respect to VLP, and why VLO senior management believed that pursuing the potential merger transaction with VLP was the best alternative. Following such discussions, the VLO Board determined that it was advisable and in the best interest of VLO and its stockholders to formally approach the VLP GP Board regarding the potential merger transaction with a non-binding proposal. During such meeting, in an effort eliminate any conflicts of interest that could influence the potential merger transaction, the VLO Board formed the VLO Special Committee and delegated to the VLO Special Committee the full power, authority and responsibility to, among other things, review, evaluate, negotiate and determine whether to approve a potential merger transaction, for and on behalf of the VLO Board and VLO.

On September 20, 2018, the VLO Special Committee held a meeting and approved the submission of a non-binding proposal (the “Initial Proposal”) to the VLP GP Board, pursuant to which VLO would offer to acquire each of the Public Units at a price of $40.00 per Common Unit in cash (the “Initial Offer Price”).

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On September 21, 2018, VLO senior management provided the Initial Proposal to the VLP GP Board, in its capacity as the governing body of VLP. The Initial Offer Price included in the Initial Proposal represented a 10.7% premium to the previous day’s closing price of $36.12 for the Common Units.

Later that day, the VLP GP Board held a meeting to discuss the Initial Proposal, at which senior management of VLP and representatives of Baker Botts were present. At such meeting, the VLP GP Board authorized the VLP GP Committee, composed of Robert S. Beadle, Timothy J. Fretthold and Randall J. Larson, each independent directors, to, among other things, review, evaluate, negotiate and, if appropriate, provide Special Approval (pursuant to the VLP Partnership Agreement) of the proposed Merger. The VLP GP Board also authorized the VLP GP Committee to select and retain its own independent legal and financial advisors.

Also on September 21, 2018, at the request of the VLP GP Committee, representatives of VLO management held a telephonic meeting with representatives of Baker Botts, Jefferies and Akin Gump to (i) discuss the Initial Proposal, (ii) discuss VLO management’s views of the current MLP environment, (iii) receive a preliminary overview of VLO management’s rationale for considering the proposed Merger, (iv) discuss timing for a presentation to the VLP GP Committee by VLO management of the proposed Merger and (v) discuss anticipated information to be provided by VLO management for the VLP GP Committee’s review and evaluation of the proposed Merger. During the course of the meeting, representatives of Jefferies and Akin Gump asked questions regarding the proposed Merger and the Initial Proposal that were answered by members of VLO management.

On September 26, 2018, a representative of VLO management delivered VLO management’s presentation and VLO management’s financial projections prepared with respect to the Market Recovery Case and the Self-Funding Case, in each case relating to the future financial and operating performance of VLP during the period from 2018 to 2022 (with immaterial corrections thereto delivered on October 3, 2018, the “VLP Projections”) to a representative of Jefferies.

Between September 27, 2018 and October 4, 2018, Baker Botts prepared, discussed and reviewed initial drafts of the Merger Agreement and the Support Agreement with VLO senior management, as well as Richards, Layton & Finger, P.A., Delaware counsel to VLO.

On September 28, 2018, VLO opened a virtual data room to Jefferies and Jefferies began a comprehensive review of its contents.

On September 29, 2018, at the direction of the VLP GP Committee, Jefferies provided initial due diligence questions to VLO management and requested a conference call with members of VLO management to discuss such due diligence questions regarding the Merger Transactions.

On October 2, 2018, Jefferies held a teleconference call with members of VLO management and representatives of J.P. Morgan to discuss Jefferies’ initial model and its due diligence questions.

On October 4, 2018, the members of the VLP GP Committee held a telephonic meeting with representatives of Jefferies and Akin Gump. After discussion and consideration, the VLP GP Committee, among other things, (i) formally retained Jefferies as the VLP GP Committee’s independent financial advisor with respect to the VLP GP Committee’s review and consideration of the Merger Transactions and (ii) formally retained Akin Gump as the VLP GP Committee’s independent legal advisor with respect to the VLP GP Committee’s review and consideration of the Merger Transactions. Representatives of Jefferies then discussed with the VLP GP Committee the due diligence that had been conducted to date and Jefferies’ preliminary financial analysis of the Merger based on the VLP Projections and the proposed merger consideration of $40.00 per Common Unit. During the presentation, Jefferies provided, among other things, (i) a summary of the terms of the Merger Transactions, (ii) a situational analysis for VLP and (iii) a summary of the VLP Projections, including the underlying assumptions. During the course of the meeting, the VLP GP Committee asked, and representatives of Jefferies answered, questions with respect to the Merger Transactions and Jefferies’ preliminary financial analysis.

On October 4, 2018, Baker Botts delivered an initial draft of the Merger Agreement to Akin Gump and the VLP GP Committee that, among other things, provided for all cash consideration at the Initial Offer Price. The structure proposed by the initial draft of the Merger Agreement was consistent with the Initial Proposal and contemplated the execution of the Support Agreement. On October 5, 2018, Baker Botts delivered an initial draft of the Support Agreement to Akin Gump.

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On October 8, 2018, at a telephonic meeting of the VLP GP Committee at which representatives of Jefferies and Akin Gump were present, representatives of Akin Gump provided an update regarding the status of the Transaction Documents and representatives of Jefferies discussed with the VLP GP Committee the due diligence that had been conducted to date and Jefferies’ financial analysis of the Merger Transactions based on the VLP Projections and the proposed merger consideration of $40.00 per Common Unit. During the presentation, Jefferies provided, among other things, (i) a summary of the terms of the Merger Transactions, (ii) a situational analysis for VLP, (iii) a summary of the VLP Projections, including the underlying assumptions and (iv) a detailed financial analysis of VLP, including a selected public companies analysis, a discounted cash flow analysis and a premiums paid analysis. Representatives of Jefferies then described, for the benefit of the VLP GP Committee, the significance of each valuation analysis method. During the presentation, the VLP GP Committee asked, and representatives of Jefferies answered, questions with respect to Jefferies’ financial analyses. Following additional discussion, the VLP GP Committee directed Jefferies to make a counteroffer of $45.00 per Common Unit, payable in cash (the “October 8 Counteroffer”).

On October 8, 2018, Jefferies delivered the October 8 Counteroffer of $45.00 per Common Unit in cash. In submitting the October 8 Counteroffer, Jefferies stated that the price of $45.00 per Common Unit was due, in part, to (i) the trading price of the Common Units over the course of the third quarter of 2018 and (ii) that the all-cash aspect of the Initial Proposal did not allow the VLP Unaffiliated Unitholders to benefit from any synergies that may result from the Merger. On October 8, 2018, the closing price of the Common Units was $40.00.

On October 10, 2018, the VLO Special Committee held a telephonic meeting to discuss the October 8 Counteroffer. The meeting was also attended by representatives of Baker Botts, J.P. Morgan and VLO senior management. At this meeting, the VLO Special Committee discussed the trading patterns and price of the Common Units following the submission of the Initial Proposal. VLO senior management and the VLO Special Committee also discussed their shared view that the Market Recovery Case was far less likely to occur than the Self-Funding Case. Given the discussions around the trading patterns and price of the Common Units following submission of the Initial Proposal and the view of the VLO Special Committee and VLO senior management that the price at which the Common Units were then trading already reflected a premium to the Initial Offer Price, the VLO Special Committee approved a counterproposal to the October 8 Counteroffer of up to $41.25 per Common Unit in cash, with the specific amount offered and the negotiations associated therewith being left to the discretion of VLO senior management. Later that day, J.P. Morgan called Jefferies on behalf of VLO and submitted a revised proposal with respect to the Merger of $41.25 per Common Unit in cash (the “October 10 Proposal”).

On October 10, 2018, at a telephonic meeting of the VLP GP Committee at which representatives of Jefferies were present, representatives of Jefferies communicated the October 10 Proposal. The VLP GP Committee and Jefferies discussed matters relating to Common Unit trading performance and the appropriate response to the October 10 Proposal. Following those discussions, the VLP GP Committee determined to have Jefferies communicate to J.P. Morgan a counteroffer (the “October 11 Counteroffer”) of $42.50 per Common Unit, payable in cash, and guaranteed payment of regular quarterly cash distributions to VLP unitholders with respect to the Third Quarter Distribution and the quarter ended December 31, 2018 (the “Fourth Quarter Distribution”) and to provide J.P. Morgan with information regarding the recent trading performance of the VLP Common Units. On October 10, 2018, the closing price of the Common Units was $39.50.

On October 11, 2018, Jefferies called J.P. Morgan on behalf of the VLP GP Committee to submit the October 11 Counteroffer to J.P. Morgan.

In the afternoon on October 12, 2018, the VLO Special Committee held a telephonic meeting, attended by representatives of Baker Botts, J.P. Morgan and VLO senior management, to discuss the October 11 Counteroffer. At such meeting, the VLO Special Committee and VLO senior management discussed whether to make a further counterproposal or accept the October 11 Counteroffer. After further discussion regarding the payment of distributions during the pendency of the transaction, the potential benefits and risks associated with making further counterproposals and the volatility of the market for the Common Units, the VLO Special Committee authorized J.P. Morgan to respond to the October 11 Counteroffer with a price of not more than $42.50 per Common Unit in cash, subject to VLP agreeing to pay only the Third Quarter Distribution prior to the closing of the Merger, with the specific amount offered and the negotiations associated therewith being left to the discretion

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of VLO senior management. At such meeting, Baker Botts also reviewed with the VLO Special Committee the terms of the draft Merger Agreement and Support Agreement provided to the VLP GP Committee. Following such review, the members of the VLO Special Committee asked various questions regarding the terms of such agreements.

During the afternoon of October 12, 2018, at a telephonic meeting of the VLP GP Committee at which representatives of Akin Gump were present, representatives of Akin Gump summarized conversations held between Akin Gump and Baker Botts regarding the Merger Transactions earlier that day and proceeded to report to the VLP GP Committee on the draft Transaction Documents, including (i) a market survey of transaction terms in similar merger agreements, (ii) an overview of the terms of the initial drafts of the Transaction Documents and (iii) a number of potential negotiation points and recommended changes to the Transaction Documents, including, among others, the no-shop provision, the distribution payment provision and fiduciary outs, including circumstances that would allow VLP to terminate the Merger Agreement or effect a VLP Adverse Recommendation Change, and VLP GP Committee consultation and approval requirements for various actions by VLP under the Transaction Documents. During the course of the meeting, the VLP GP Committee asked, and representatives of Akin Gump answered, various questions with respect to the drafts of the Transaction Documents. Following the discussion, the VLP GP Committee determined to have representatives of Akin Gump provide Baker Botts with revised drafts of the Transaction Documents once the non-binding economic terms of the Merger Transactions were established.

Later that day, the VLO Special Committee directed J.P. Morgan to present a counterproposal to Jefferies of $42.00 per Common Unit in cash and a requirement that VLP agree to pay only the Third Quarter Distribution (the “October 12 Offer”).

Later in the afternoon on October 12, 2018, at a telephonic meeting of the VLP GP Committee at which representatives of Jefferies and Akin Gump were present, representatives of Jefferies communicated the October 12 Offer. Representatives of Jefferies then summarized discussions with J.P. Morgan regarding the October 11 Counteroffer during which J.P. Morgan referenced (i) market volatility, (ii) sustainability of VLP performance, (ii) peer group composition and (iv) the Common Unit trading price as of such time as rationales for the October 12 Offer, among others, in response to the October 11 Counteroffer. After discussion in which the VLP GP Committee discussed market conditions and transaction premiums, the VLP GP Committee determined to propose that the consideration be $42.25 per Common Unit, payable in cash, with guaranteed payment of the Third Quarter Distribution (the “October 12 Counteroffer”).

In the evening of October 12, 2018, Jefferies submitted the October 12 Counteroffer to J.P. Morgan via telephone on behalf of the VLP GP Committee. VLO senior management communicated to Jefferies that, pending negotiation of definitive documents, the VLO Special Committee would be supportive of a transaction based on the terms of the October 12 Counteroffer. On October 12, 2018, the closing price of the Common Units was $38.90.

During the afternoon of October 12, 2018, J.P. Morgan called Jefferies on behalf of VLO and informed Jefferies that VLO accepted the non-binding economic terms of the October 12 Counteroffer.

From October 12, 2018 through October 18, 2018, Baker Botts, Akin Gump, the VLP GP Committee and VLO management negotiated the terms of the Merger Agreement and the Support Agreement.

Later in the evening of October 12, 2018, Akin Gump provided revised drafts of the Transaction Documents to Baker Botts reflecting the comments of the VLP GP Committee. The October 12, 2018 drafts provided by Akin Gump to Baker Botts included, among other things, (i) modifications to some of the representations and warranties of VLO and Merger Sub, as well as to certain other provisions of the Merger Agreement, (ii) expansions to the circumstances in which (A) the VLP GP Committee’s consent would generally be required in order for the VLP GP Board to take certain actions under the Merger Agreement and (B) the VLP GP Board would be required to consult with the VLP GP Committee before taking certain actions, (iii) the ability for the VLP GP Board, subject to a customary notice and negotiation period in favor of VLO, to make a VLP Adverse Recommendation Change (but not to terminate the Merger Agreement) in response to an unsolicited third-party acquisition proposal, that, among other criteria, (x) is more favorable to the VLP Unaffiliated Unitholders from a financial point of view and (y) is reasonably likely to be consummated in accordance with its terms, taking into consideration any necessary approvals, but only if the failure to take such action would breach certain duties owed by the VLP GP Committee, (iv) expanding the circumstances under which the VLP GP Board could

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otherwise effect a VLP Adverse Recommendation Change or terminate the Merger Agreement for Intervening Events (as defined in the Merger Agreement) and (v) updates to the distribution payment provision to provide for the guaranteed payment of the Third Quarter Distribution in an amount of not less than $0.551 per Common Unit.

Between October 15 and October 17, 2018, Baker Botts and Akin Gump traded additional drafts of the Transaction Documents and held several telephonic meetings to discuss the draft Transaction Documents. Among other things, it was ultimately agreed that (i) VLO would agree to include a superior proposal concept, including certain exceptions to the no-shop provision proposed by the VLP GP Committee and Akin Gump in the Merger Agreement, (ii) the circumstances under which the Merger Agreement could be terminated or a VLP Adverse Recommendation Change could be effected would be limited to circumstances where failure to take action would be a breach of the VLP GP Board’s duties to the VLP Unaffiliated Unitholders under applicable law, as modified by the VLP Partnership Agreement, or the VLP Partnership Agreement, and removal of the additional exceptions proposed by Akin Gump and the VLP GP Committee and (iii) a middle ground could be reached whereby the VLP GP Board would generally be required to consult with, rather than obtain the consent of, the VLP GP Committee before taking certain actions under the Merger Agreement.

On the morning of October 18, 2018, the VLO Special Committee held a meeting wherein VLO senior management discussed the history of negotiations with respect to the Merger Consideration that resulted in the October 12 Counteroffer, and Baker Botts provided a summary of the final terms of the Transactions Documents, as well as the negotiations leading to the finalization of such terms. Following such discussions, the VLO Special Committee (i) determined that the Merger Agreement is advisable and the Merger Transactions are fair and reasonable to the VLP Unaffiliated Unitholders and in the best interest of VLO and its stockholders and (ii) approved the Merger Agreement and the Merger Transactions, the execution, delivery and performance of the Merger Agreement and the consummation of the Merger Transactions.

Later that morning, at a meeting of the VLP GP Committee at which representatives of Jefferies and Akin Gump were present, representatives of Akin Gump provided an overview of the terms of the final draft of the Merger Agreement, explained the final negotiated changes to the Transaction Documents and answered questions from the VLP GP Committee regarding the terms of the agreements. The VLP GP Committee discussed the Merger Agreement provisions related to the Third Quarter Distribution and the contractual prohibition against the Fourth Quarter Distribution being paid unless consented to by VLO. Such discussions specifically contemplated the Outside Date for the consummation of the Merger Transactions being on or before July 18, 2019. Jefferies presented its financial analysis of the Merger Consideration of $42.25 per Common Unit, payable in cash, with guaranteed payment of the Third Quarter Distribution, noting that the Jefferies presentation materials and financial analyses were substantially similar to those most recently presented to the VLP GP Committee and had been updated to reflect the Merger Consideration of $42.25 per Common Unit. The $42.25 per Common Unit Merger Consideration represented a premium of (i) approximately 17% to the closing price of the Common Units on September 20, 2018, the last completed trading day prior to VLO’s initial proposal to the VLP GP Committee on September 21, 2018, and (ii) approximately 12% to the 30 trading-day VWAP of the Common Units as of October 17, 2018. After the VLP GP Committee discussed Jefferies’ presentation, representatives of Jefferies then confirmed that Jefferies was prepared to deliver a fairness opinion to the VLP GP Committee based on the Merger Consideration of $42.25 per Common Unit. At the request of the VLP GP Committee, Jefferies delivered its written opinion dated October 18, 2018, that, as of October 18, 2018 and based upon and subject to the factors, procedures, limitations and other matters set forth in its written opinion, the Merger Consideration of $42.25 per Common Unit was fair, from a financial point of view, to VLP and the VLP Unaffiliated Unitholders. After further discussions and based on prior conclusions of the VLP GP Committee with respect to the risks and merits of the Merger Transactions, the VLP GP Committee unanimously, and in good faith, (i) determined that the Merger Agreement, the Support Agreement and the Merger Transactions are (A) fair and reasonable to the VLP Unaffiliated Unitholders and (B) in the best interest of VLP, (ii) approved the Merger Agreement, the Support Agreement and the Merger Transactions, (iii) recommended that the VLP GP Board approve the Merger Agreement, the Support Agreement, the execution, delivery and performance of the Merger Agreement and the Support Agreement and the consummation of the Merger Transactions and (iv) recommended that the VLP GP Board submit the Merger Agreement to a vote of VLP’s limited partners by written consent and recommend the approval of the Merger Agreement and the Merger by VLP’s limited partners, such action by the VLP GP Committee described in clauses (i)(B) and (ii) above constituting “Special Approval” (as such term is defined in the VLP Partnership Agreement).

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Upon the receipt of the VLP GP Committee’s recommendation, on October 18, 2018, the VLP GP Board, unanimously, and in good faith, (i) determined that each of the Merger Agreement, the Support Agreement and the Merger Transactions is fair and reasonable to the VLP Unaffiliated Unitholders and in the best interest of VLP, (ii) approved the Merger Agreement, the Support Agreement, the execution, delivery and performance of the Merger Agreement and the Support Agreement and the consummation of the Merger Transactions, (iii) resolved and directed that the Merger Agreement and the Merger be submitted to a vote of VLP’s limited partners by written consent (and authorized VLP’s limited partners to act by written consent without a meeting in connection with the approval of the Merger Agreement and the Merger) and (iv) recommended approval of the Merger Agreement and the Merger by VLP’s limited partners.

On the afternoon of October 18, 2018, the Transaction Documents were executed by the parties.

Later in the afternoon of October 18, 2018, VLO and VLP issued news releases announcing the Merger Agreement.

Resolution of Conflicts of Interest; Standards of Conduct and Modification of Duties

The approval of the Merger Agreement, the Support Agreement and the Merger Transactions by a majority of the members of the VLP GP Committee acting in good faith constitutes “Special Approval” (as such term is defined in the VLP Partnership Agreement). Under Section 7.9(a) of the VLP Partnership Agreement, whenever a potential conflict of interest exists between VLP GP or its affiliates, on the one hand, and VLP, its subsidiaries or the VLP Common Unitholders, on the other hand, such as the consideration of the Merger Agreement, the Support Agreement and the Merger Transactions, any resolution or course of action by VLP GP or its affiliates in respect of such conflict of interest will be permitted and deemed approved by VLP GP and all of VLP’s limited partners, and will not constitute a breach of the VLP Partnership Agreement (including any agreement contemplated by the VLP Partnership Agreement) or of any duty stated or implied by law or equity, if the resolution or course of action in respect of such conflict of interest is approved by Special Approval.

Under Section 7.9(b) of the VLP Partnership Agreement, whenever VLP GP (acting in its capacity as the general partner of VLP) or the VLP GP Board or any committee thereof (including the VLP GP Committee) makes a determination or takes, or declines to take, any other action in their respective capacities, VLP GP, the VLP GP Board and any committee thereof (including the VLP GP Committee), as applicable, are each required to make such determination, or take or decline to take such other action, in “good faith,” meaning that they subjectively believed that the determination or other action was not adverse to VLP’s best interests, and, except as specifically provided by the VLP Partnership Agreement, will not be subject to any other or different standard imposed by the VLP Partnership Agreement, Delaware law, or any other law, rule or regulation, or at equity.

Under Section 7.10(b) of the VLP Partnership Agreement, any action taken or omitted to be taken by, among others, VLP GP or members of the VLP GP Board in reliance upon the advice or opinion of legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisers selected by such person as to matters reasonably believed to be in such adviser’s professional or expert competence, will be conclusively presumed to have been done or omitted in good faith and in accordance with such advice or opinion.

Recommendation of the VLP GP Committee and the VLP GP Board; Reasons for Recommending Approval of the Merger Agreement and the Merger Transactions

The VLP GP Committee

The VLP GP Committee consists of three independent directors: Timothy J. Fretthold, Robert S. Beadle and Randall J. Larson. The VLP GP Committee retained Akin Gump as its independent legal counsel. In addition, the VLP GP Committee retained Jefferies as its independent financial advisor. The VLP GP Committee oversaw the performance of financial and legal due diligence by its advisors, conducted an extensive review and evaluation of VLO’s proposals and conducted negotiations with VLO and its representatives with respect to the Transaction Documents and the Merger Transactions.

The VLP GP Committee considered the benefits of the Merger Agreement, including the Merger as well as the associated risks and, on October 18, 2018, unanimously, and in good faith, (i) determined that the Merger Agreement, the Support Agreement and the Merger Transactions are (A) fair and reasonable to the VLP Unaffiliated Unitholders and (B) in the best interest of VLP, (ii) approved the Merger Agreement, the Support

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Agreement and the Merger Transactions, (iii) recommended that the VLP GP Board approve the Merger Agreement, the Support Agreement, the execution, delivery and performance of the Merger Agreement and the Support Agreement and the consummation of the Merger Transactions and (iv) recommended that the VLP GP Board submit the Merger Agreement to a vote of VLP’s limited partners by written consent and recommend the approval of the Merger Agreement and the Merger by VLP’s limited partners, such action by the VLP GP Committee described in clauses (i)(B) and (ii) above constituting “Special Approval” (as such term is defined in the VLP Partnership Agreement). For more information regarding the recommendation of the VLP GP Committee, see “Special Factors—Recommendation of the VLP GP Committee and the VLP GP Board; Reasons for Recommending Approval of the Merger Agreement and the Merger Transactions—Reasons for the VLP GP Committee’s Recommendation.”

Reasons for the VLP GP Committee’s Recommendation

The VLP GP Committee consulted with its independent financial and legal advisors and considered many factors in making its determination and approvals, and the related recommendation to the VLP GP Board. The VLP GP Committee considered the following factors to be generally positive or favorable in making its determination and approvals, and the related recommendation to the VLP GP Board:

The delivery of an opinion by Jefferies to the VLP GP Committee on October 18, 2018, that, as of October 18, 2018 and based upon and subject to the factors, procedures assumptions, qualifications, limitations and other matters set forth therein, the Merger Consideration was fair, from a financial point of view, to VLP and the VLP Unaffiliated Unitholders including the various analyses undertaken by Jefferies in connection with its opinion which are described under “Opinion of Jefferies LLC, Financial Advisor to the VLP GP Committee—Analysis of VLP” (and which opinion and related financial analyses were considered and adopted by the VLP GP Committee as its own).
The Merger would provide the Public Unitholders with Merger Consideration of $42.25 per Common Unit, a price the VLP GP Committee viewed as fair in light of VLP’s recent market performance and projected financial performance. Such Merger Consideration amount represented a premium of approximately 12% above the VWAP of the Common Units for the 30 consecutive NYSE full trading days ending at the close of regular trading hours on the NYSE on October 17, 2018.
The Merger Consideration of $42.25 per Common Unit represents a 5.6% increase from the value of the Merger Consideration originally offered by VLO in the Initial Proposal.
The VLP GP Board would declare a cash distribution in respect of the third quarter of 2018 in the amount of not less than $0.551 per unit on all of its outstanding Common Units.
The VLP GP Committee’s belief that it was unlikely that any other transaction with a third party involving a sale of VLP or a significant interest in VLP or its assets could be consummated at the time of the VLP GP Committee’s determination and approval in light of VLO’s stated position when it delivered the Initial Proposal (and throughout its negotiations with the VLP GP Committee) that it was only interested in acquiring all of the outstanding Common Units owned by the Public Unitholders and had no interest in approving any combination of VLP with, or a sale of all or substantially all of the assets of VLP to, any other acquirer. In addition, the VLP GP Committee considered the potential implications to VLP and the Public Unitholders of remaining with the status quo rather than approving the Merger Agreement and the Merger, as reflected in the VLP Projections.
The VLP GP Committee’s belief that $42.25 per Common Unit was likely the highest price per Common Unit that VLO would be willing to pay at the time of the VLP GP Committee’s determination and approval.
The VLP GP Committee’s recognition that the state of the financial markets makes it difficult to fund VLP acquisitions and expansion capital expenditures.
Because a higher percentage of VLP’s cash is allocated to VLP GP due to the IDRs, it is more difficult for VLP to increase the amount of distributions to its unitholders and VLP’s cost of capital is higher, making investments, capital expenditures and acquisitions, and therefore, future growth, more costly.
VLO’s historical status as the sole customer of VLP and the dependence of VLP’s growth on the growth of VLO’s business.

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The impact of rising interest rates on the value of VLP’s yield-oriented securities.
Certain terms of the Merger Agreement and the Support Agreement, principally:
each Common Unit owned by the Public Unitholders will be converted into the right to received cash equal to $42.25;
prior to the Effective Time, each Common Unit would also receive not less than $0.551 as a cash distribution in respect of the third quarter of 2018;
the limited nature of the operational representations and warranties given by VLP;
the consummation of the Merger is not conditioned on financing;
the provision allowing the VLP GP Board to withdraw or change its recommendation in response to an Intervening Event or a Superior Proposal (as such terms are defined in the Merger Agreement) if it determines in good faith (after consultation with the VLP GP Committee) that the failure to take such action would be a breach of its duties to the VLP Unaffiliated Unitholders under applicable law, as modified by the VLP Partnership Agreement, or the VLP Partnership Agreement, subject to a customary notice and negotiation period in favor of VLO;
the provision allowing VLP to terminate the Merger Agreement under certain circumstances in response to an Intervening Event (as defined in the Merger Agreement);
the lack of a break-up fee for termination of the Merger Agreement in accordance with its terms; and
that under the Support Agreement, VTDC has agreed to deliver the VTDC Written Consent unless there is a change in the VLP GP Board’s recommendation, in which case VTDC is allowed to terminate the Support Agreement.

In addition, the VLP GP Committee also considered a number of factors relating to the procedural safeguards involved in the negotiation of the Merger Agreement, including those discussed below, each of which supported its determination with respect to the Merger:

Each of the members of the VLP GP Committee satisfies the requirements for serving on the VLP GP Committee as required under the VLP Partnership Agreement, including the requirement that all members of the VLP GP Committee be independent directors.
In connection with the consideration of the Merger, the VLP GP Committee retained its own independent financial and legal advisors with knowledge and experience with respect to public merger and acquisition transactions, and VLP’s industry specifically, as well as substantial experience advising publicly traded MLPs and other companies with respect to transactions similar to the Merger.
Under the terms of the Merger Agreement, prior to the Effective Time, VLO will not, and will not permit any of its subsidiaries to, eliminate the VLP GP Committee, revoke or diminish the authority of the VLP GP Committee or remove or cause the removal of any director of the VLP GP Board who is a member of the VLP GP Committee either as a director or as a member of such committee, without the affirmative vote of the majority of the then existing members of the VLP GP Committee.
The Merger Agreement may not be amended without the prior approval of the VLP GP Committee.
Whenever a determination, decision, approval, consent, waiver or agreement of VLP is required pursuant to the Merger Agreement, including any determination by VLP to terminate the Merger Agreement or any decision or determination by VLP GP to make a VLP Adverse Recommendation Change, such determination, decision, approval, consent, waiver or agreement must be made after consultation with or authorization by, as applicable, the VLP GP Committee (if on behalf of VLP).
The terms and conditions of the Merger Agreement and the Merger were determined through negotiations between the VLO Special Committee and the VLP GP Committee and their respective representatives and advisors.

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The VLP GP Committee considered the following factors to be generally negative or unfavorable in making its determination and approvals, and the related recommendation to the VLP GP Board:

The Merger Agreement does not require VLP to pay a cash distribution in respect of the fourth quarter of 2018 or any quarter in 2019.
VTDC owns a sufficient number of Common Units to approve the Merger Agreement and the Merger without a vote of the Public Unitholders.
The Public Unitholders will not have equity participation in VLP, or, as a potential portion of the Merger Consideration, in VLO, following the Effective Time of the Merger, and the Public Unitholders will accordingly cease to participate in VLP’s future earnings or growth, if any, or to benefit from increases, if any, in the value of the Common Units.
The Merger will be a taxable transaction to the Public Unitholders for U.S. federal income tax purposes. See “Material U.S. Federal Income Tax Considerations.”
The Public Unitholders are not entitled to appraisal rights under the Merger Agreement, the VLP Partnership Agreement or Delaware law.
Although the VLP GP Committee believed that the Merger Consideration was fair and reasonable to the VLP Unaffiliated Unitholders, the VLP GP Committee was not authorized to, and did not, independently conduct an auction process or other solicitation of interest from third parties for the acquisition of VLP or its assets.
The Merger might not be completed in a timely manner, or at all, and a failure to complete the Merger could negatively affect the trading price of the Common Units.
Determinations, decisions, approvals, consents, waivers or agreements of VLP GP (acting in its own capacity and not on behalf of VLP) under the Merger Agreement do not require VLP GP Committee consent and the VLP GP Committee does not have consulting rights over such actions.
Litigation may be commenced in connection with the Merger and such litigation may increase costs and result in a diversion of management focus.

In making its determination and approvals, and the related recommendation to the VLP GP Board, the VLP GP Committee considered the current and historical market prices of the Common Units; however, it was the belief of the VLP GP Committee that market trends do not necessarily reflect VLP’s underlying business or financial condition. In making its determination and approvals, and the related recommendation to the VLP GP Board, the VLP GP Committee did not consider the liquidation value of the assets of VLP or any of its subsidiaries because the VLP GP Committee believed that liquidation value was not a material indicator of the value of VLP. In addition, the VLP GP Committee did not consider VLP’s net book value, which is defined as total assets minus total liabilities, because the VLP GP Committee believed that net book value was not a material indicator of the value of VLP as a going concern. The VLP GP Committee was not aware of, and thus did not consider, any firm offers or proposals made by any unaffiliated person during the past two years for: (i) a merger or consolidation of VLP with another company, (ii) the sale or transfer of all or substantially all of VLP’s assets or (iii) the purchase of VLP securities that would enable such person to exercise control of or significant influence over VLP. The VLP GP Committee is not aware of, and thus did not consider, any purchases by VLP of Common Units during the past two years.

The VLP GP Committee did not retain an unaffiliated representative to act solely on behalf of the VLP Unaffiliated Unitholders for purposes of negotiating the terms of the Merger Agreement. The VLP GP Committee believes that it was not necessary to retain an unaffiliated representative to act solely on behalf of the VLP Unaffiliated Unitholders for purposes of negotiating the terms of the Merger Agreement because the VLP GP Committee was charged with representing the interests of VLP and the VLP Unaffiliated Unitholders, it consisted solely of directors who are not officers or controlling equityholders of VLP, VLP GP or the Valero Parties, it engaged financial and legal advisors to act on its behalf and it was actively involved in deliberations and negotiations regarding the Merger on behalf of the VLP Unaffiliated Unitholders.

The foregoing discussion of the information and factors considered by the VLP GP Committee is not intended to be exhaustive, but includes material factors the VLP GP Committee considered. In view of the

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variety of factors considered in connection with its evaluation of the Merger and the complexity of these matters, the VLP GP Committee did not find it useful and did not attempt to quantify or assign any relative or specific weights to the various factors considered in making its determination and recommendation. Overall, the VLP GP Committee believed that the positive factors supporting the Merger outweighed the negative factors it considered.

The VLP GP Board

The VLP GP Board consists of seven directors: (i) three of whom are independent (Timothy J. Fretthold, Robert S. Beadle and Randall J. Larson) and (ii) four of whom are executive officers and/or directors of VLO or its affiliates, including executive officers of VLP GP. As such, the directors on the VLP GP Board may have different interests in the Merger than the VLP Common Unitholders. For a complete discussion of these and other interests of the members of the VLP GP Board in the Merger, see “Special Factors—Interests of Certain Persons in the Merger.” The VLP GP Board delegated to the VLP GP Committee the full power and authority of the VLP GP Board to (i) review and evaluate the terms and conditions, and determine the advisability, of the proposed transaction, (ii) negotiate, or delegate the ability to negotiate to any persons, with any party the VLP GP Committee deems appropriate, with respect to the terms and conditions of the proposed transaction, (iii) determine whether or not to recommend for approval to the VLP GP Board the proposed transaction, including by “Special Approval” (as such term is defined in the VLP Partnership Agreement), (iv) make a recommendation to the VLP GP Board whether to approve the proposed transaction and (v) to determine whether the proposed transaction is fair and reasonable to the VLP Unaffiliated Unitholders and in the best interest of VLP.

On October 18, 2018, the VLP GP Committee unanimously and in good faith resolved that the Merger Agreement, the Support Agreement and the Merger Transactions are fair and reasonable to the VLP Unaffiliated Unitholders and in the best interest of VLP. Based upon such determination, the VLP GP Committee recommended to the VLP GP Board that the VLP GP Board (i) approve the Merger Agreement, the Support Agreement, the execution, delivery and performance of the Merger Agreement and the Support Agreement by VLP and the consummation of the Merger Transactions, and (ii) submit the Merger Agreement to a vote of VLP’s limited partners by written consent and recommend the approval of the Merger Agreement and the Merger by VLP’s limited partners. On October 18, 2018, the VLP GP Board, after considering the factors discussed below, including the unanimous determination and recommendation of the VLP GP Committee, and after receiving the approval of the VLP GP’s sole member, unanimously and in good faith (i) determined that each of the Merger Agreement, the Support Agreement and the Merger Transactions is fair and reasonable to the VLP Unaffiliated Unitholders and in the best interest of VLP, (ii) approved the Merger Agreement, the Support Agreement, the execution, delivery and performance of the Merger Agreement and Support Agreement by VLP GP and VLP, and the consummation of the Merger Transactions, (iii) resolved and directed that the Merger Agreement and the Merger be submitted to a vote of VLP’s limited partners by written consent and (iv) recommended approval of the Merger Agreement and the Merger by VLP’s limited partners.

In determining that the Merger Agreement, the Support Agreement and the Merger Transactions are fair and reasonable to the VLP Unaffiliated Unitholders and in the best interest of VLP, and approving the Merger Agreement, the Support Agreement and the Merger Transactions, and recommending that VLP’s limited partners approve the Merger Agreement and the Merger, the VLP GP Board considered a number of factors, including the following material factors: (i) the unanimous, good faith approval and recommendation of the VLP GP Committee and (ii) the factors considered by the VLP GP Committee, including the material factors considered by the VLP GP Committee described under “—Reasons for the VLP GP Committee’s Recommendation” above. In doing so, the VLP GP Board expressly adopted the analysis of the VLP GP Committee, which is discussed above.

The foregoing discussion of the information and factors considered by the VLP GP Board is not intended to be exhaustive, but includes material factors that the VLP GP Board considered. In view of the variety of factors considered in connection with its evaluation of the Merger and the complexity of these matters, the VLP GP Board did not find it useful and did not attempt to quantify or assign any relative or specific weights to the various factors considered in making its determination and recommendation. The VLP GP Board approved and recommended that VLP Common Unitholders approve, by written consent, the Merger Agreement and the Merger based upon the totality of the information presented to and considered by the VLP GP Board.

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The Merger Agreement, the Support Agreement and the Merger Transactions were approved by the VLP GP Board, following the recommendation of the VLP GP Committee, as described above in the section entitled “—Reasons for the VLP GP Committee’s Recommendation.”

Unaudited Financial Projections of VLP

VLO and VLP management do not routinely disclose to the public markets long-term future financial projections. However, for purposes of evaluating the proposed Merger, VLO management prepared the VLP Projections. The VLP Projections, a summary of which is provided below, were prepared with respect to the Market Recovery Case and the Self-Funding Case. The VLP Projections were furnished to the VLP GP Board and the VLP GP Committee in connection with the proposed Merger. The VLP Projections were also provided to (i) J.P. Morgan for use and consideration in preparing the financial analyses contained in the J.P. Morgan Materials (as defined below) (for additional information regarding the J.P. Morgan Materials, see “Special Factors—J.P. Morgan Financial Advisor Materials”) and (ii) Jefferies for use and consideration in its financial analyses and in preparing its opinion to the VLP GP Committee.

The VLP Projections summarized below were prepared by, and are the responsibility of, VLO management. The VLP Projections were not prepared with a view toward public disclosure or toward compliance with GAAP, the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants. Neither KPMG LLP (“KPMG”), VLO’s independent registered public accounting firm, nor any other independent registered public accounting firm, examined or performed any procedures with respect to the prospective financial information contained in the VLP Projections and, accordingly, KPMG does not express an opinion or any other form of assurance with respect thereto. KPMG has not given advice or consultation in connection with the proposed Merger. The KPMG reports incorporated by reference into this information statement with respect to VLP relate to historical financial information of VLP. Such reports do not extend to the VLP Projections summarized below and should not be read to do so. VLO management gives no assurance regarding the summarized information below. The summary of the VLP Projections is not included in this information statement to influence any decision of the VLP Unaffiliated Unitholders and should not be relied upon for such purpose.

The inclusion of the following summary of the VLP Projections in this information statement should not be regarded as an indication that VLO management, or its advisors or other representatives, considered or consider the VLP Projections to be a reliable or accurate prediction of future performance or events, and the summary projections set forth below should not be relied upon as such.

The VLP Projections are based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of VLO and VLP management. Important factors that may affect actual results and cause the projected financial information not to be achieved include, but are not limited to, risks and uncertainties relating to VLP’s or VLO’s respective businesses (including their ability to achieve strategic goals, objectives and targets over applicable periods), industry performance, the regulatory environment, general business and economic conditions and other matters described under the sections entitled “Cautionary Statement Regarding Forward-Looking Statements.” The VLP Projections also reflect assumptions as to certain business decisions that are subject to change. As a result, actual results may differ materially from those contained in the summary of the VLP Projections. Accordingly, there can be no assurance that the forecasted results will be realized.

All of these assumptions involve variables making them difficult to predict, and some are beyond the control of VLO and VLP. Although VLO management believes that there was a reasonable basis for its projections and underlying assumptions, none of VLO, VLP, or any of their respective affiliates, advisors, officers, directors or representatives has made or makes any representation or can give any assurance to any VLP Unaffiliated Unitholder, or any other person, regarding the ultimate performance of VLP compared to the summarized information set forth below or that any such results will be achieved. The projections are forward-looking statements and are subject to risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements.”

In developing the projections, VLO management made numerous material assumptions with respect to VLP for the period from 2018 to 2022, including:

organic growth opportunities and opportunities to acquire assets from VLO;

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the amount and timing of capital expenditures and operational cash flows related to such organic and VLO dependent growth opportunities;
the cash flow from existing or newly acquired assets and business activities;
outstanding debt during the applicable periods, and the availability and cost of capital;
VLP’s ability to make cash distributions and the amount declared by the VLP GP Board; and
other general business, market and financial assumptions.

The summarized projected financial information set forth below was based on VLP’s projected results for 2018 through 2022 with respect to the Market Recovery Case (the “Market Recovery Projections”):

 
Year Ending December 31,
 
2018E
2019E
2020E
2021E
2022E
 
(in millions, unless otherwise noted)
EBITDA – Base Assets
$
 391.6
 
$
 412.8
 
$
 400.5
 
$
 408.7
 
$
 414.8
 
2020 Acquisitions
 
 
 
 
 
137.0
 
 
152.9
 
 
157.5
 
2021 Acquisitions
 
 
 
 
 
 
 
125.6
 
 
140.1
 
2022 Acquisitions
 
 
 
 
 
 
 
 
 
45.4
 
Total EBITDA
$
391.6
 
$
412.8
 
$
537.5
 
$
687.2
 
$
757.8
 
Deferred revenue impacts
 
(0.3
)
 
(0.1
)
 
 
 
 
 
 
Net cash interest expense
 
(49.5
)
 
(55.2
)
 
(78.6
)
 
(106.7
)
 
(120.8
)
Maintenance capex attributable to VLP
 
(22.3
)
 
(25.5
)
 
(23.9
)
 
(22.7
)
 
(24.9
)
Texas margin tax
 
(1.0
)
 
(1.1
)
 
(1.2
)
 
(1.4
)
 
(2.0
)
Distributable cash flow
$
318.5
 
$
330.9
 
$
433.8
 
$
556.4
 
$
610.1
 
Distribution – limited partner units
$
 155.4
 
$
 170.9
 
$
218.9
 
$
274.9
 
$
 306.7
 
Distribution – general partner units
$
74.4
 
$
89.9
 
$
124.6
 
$
167.2
 
$
197.4
 
Total distributions
$
229.8
 
$
260.8
 
$
343.5
 
$
442.1
 
$
504.1
 
Total distribution coverage ratio
 
1.39
x
 
1.27
x
 
1.26
x
 
1.26
x
 
1.21
x
Drop-down financing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total acquisitions
 
 
 
 
$
1,200.0
 
$
1,100.0
 
$
400.0
 
Cash and cash equivalents
 
 
 
 
 
105.0
 
 
95.0
 
 
120.0
 
Debt issuance
 
 
 
 
 
650.0
 
 
520.0
 
 
220.0
 
Equity issuance
 
 
 
 
 
436.1
 
 
475.3
 
 
58.8
 
VLP GP capital contribution
 
 
 
 
 
8.9
 
 
9.7
 
 
1.2
 
Quarterly distribution growth
 
16.7
%
 
6.2
%
 
11.9
%
 
9.9
%
 
9.7
%

The summarized projected financial information set forth below was based on VLP’s projected results for 2018 through 2022 with respect to the Self-Funding Case (the “Self-Funding Projections”):

 
Year Ending December 31,
 
2018E
2019E
2020E
2021E
2022E
 
(in millions, unless otherwise noted)
Total EBITDA – Base Assets
$
 391.6
 
$
 412.8
 
$
 401.6
 
$
 410.6
 
$
 417.8
 
Deferred revenue impacts
 
(0.3
)
 
(0.1
)
 
 
 
 
 
 
Net cash interest expense
 
(49.5
)
 
(55.2
)
 
(59.6
)
 
(60.9
)
 
(60.9
)
Maintenance capex attributable to VLP
 
(22.3
)
 
(25.5
)
 
(23.9
)
 
(19.6
)
 
(19.0
)
Texas margin tax
 
(1.0
)
 
(1.1
)
 
(1.2
)
 
(1.1
)
 
(1.1
)
Distributable cash flow
$
318.5
 
$
330.9
 
$
316.9
 
$
329.0
 
$
336.8
 
Distribution limited partner units
$
155.4
 
$
165.9
 
$
167.8
 
$
169.9
 
$
173.5
 
Distribution general partner units
$
74.4
 
$
84.9
 
$
86.8
 
$
88.9
 
$
92.5
 
Total distributions
$
229.8
 
$
250.8
 
$
254.6
 
$
258.8
 
$
266.0
 
Total distribution coverage ratio
 
1.39
x
 
1.32
x
 
1.24
x
 
1.27
x
 
1.27
x
Drop-down financing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total acquisitions
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
Debt issuance
 
 
 
 
 
 
 
 
 
 
Equity issuance
 
 
 
 
 
 
 
 
 
 
VLP GP capital contribution
 
 
 
 
 
 
 
 
 
 
Quarterly distribution growth
 
16.7
%
 
1.7
%
 
0.8
%
 
1.8
%
 
1.9
%

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Non-GAAP Financial Measures (as presented in the tables above):

The summary of the VLP Projections above include the financial measures EBITDA, distributable cash flow and distribution coverage ratio, which are not GAAP measures and are not intended to be used in lieu of GAAP measures. These non-GAAP financial measures have important limitations as analytical tools because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. Additionally, because such non-GAAP measures may be defined differently by other companies in VLP’s industry, the definition of such non-GAAP measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. The measures presented do not represent all items that affect comparability between the periods presented. Variations in operating results are also caused by changes in volumes, prices, exchange rates, mechanical interruptions and numerous other factors. These types of variances are not separately identified in this presentation.

These non-GAAP measures are defined as follows:

EBITDA is defined as net income plus income tax expense, interest expense, and depreciation expense.
Distributable cash flow is defined as EBITDA plus (i) adjustments related to minimum throughput commitments; less (ii) cash payments during the period for interest, income taxes, and maintenance capital expenditures.
Distribution coverage ratio is defined as the ratio of distributable cash flow to the total distribution declared.

The definitions of these terms and the presentation of the associated measures are believed to be useful to external users of VLP’s financial statements, such as industry analysts, investors, lenders, and rating agencies, to:

describe VLP’s expectation of forecasted earnings;
assess VLP’s operating performance as compared to other MLPs in the transportation and logistics industry, without regard to historical cost basis or, in the case of EBITDA, financing methods;
assess the ability of VLP’s business to generate sufficient cash to support the decision to make distributions to VLP’s unitholders;
assess VLP’s ability to incur and service debt and fund capital expenditures; and
assess the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

The presentation of EBITDA is believed to provide useful information to investors in assessing VLP’s financial condition and results of operations. The GAAP measures most directly comparable to EBITDA are net income and net cash provided by operating activities.

Distributable cash flow was used in the VLP Projections to measure whether VLP has generated from its operations, or “earned,” an amount of cash sufficient to support the payment of the minimum quarterly distributions. The VLP Partnership Agreement contains the concept of “operating surplus” to determine whether VLP’s operations are generating sufficient cash to support the distributions that VLP is paying, as opposed to returning capital to its partners. Because operating surplus is a cumulative concept (measured from VLP’s initial public offering date and compared to cumulative distributions from the initial public offering date), distributable cash flow was used to approximate operating surplus on a quarterly or annual, rather than a cumulative, basis. As a result, distributable cash flow is not necessarily indicative of the actual cash VLP has on hand to distribute or that VLP is required to distribute.

Distribution coverage ratio was used in the VLP Projections to reflect the relationship between its distributable cash flow and the total distribution declared.

Reconciliations of forward-looking non-GAAP financial measures to comparable GAAP measures are not available because certain information needed to make a reasonable forward-looking estimate is difficult to estimate and dependent on future events which may be uncertain or outside of VLO’s and VLP’s control, including with respect to unknown financing terms, acquisition timing, unanticipated acquisition costs, negotiation of acquisition terms, and other potential variables. Accordingly, a reconciliation is not available without unreasonable effort.

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VLO and VLP DO NOT INTEND TO UPDATE OR OTHERWISE REVISE THE ABOVE PROSPECTIVE FINANCIAL INFORMATION TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE SUCH PROSPECTIVE FINANCIAL INFORMATION WAS PREPARED OR TO REFLECT THE OCCURRENCE OF SUBSEQUENT EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH PROSPECTIVE FINANCIAL INFORMATION ARE NO LONGER APPROPRIATE.

Opinion of Jefferies LLC, Financial Advisor to the VLP GP Committee

In September 2018, the VLP GP Committee retained Jefferies to act as the VLP GP Committee’s financial advisor in connection with the proposed acquisition by VLO of 100% of the Public Units, or any other potential strategic transactions, including a possible sale or other business combination. At a meeting of the VLP GP Committee on October 18, 2018, Jefferies rendered its opinion, to the effect that, as of that date and based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken as set forth in its opinion, the Merger Consideration to be received by the VLP Unaffiliated Unitholders pursuant to the Merger Agreement was fair, from a financial point of view, to VLP and the VLP Unaffiliated Unitholders.

The full text of the Partnership Fairness Opinion (as defined in the Merger Agreement) of Jefferies, dated as of October 18, 2018, is attached as Annex C to this information statement. Jefferies’ opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Jefferies in rendering its opinion. VLP encourages you to read Jefferies’ opinion carefully and in its entirety. Jefferies’ opinion was directed to the VLP GP Committee (in its capacity as such) and addresses only the fairness, from a financial point of view, of the Merger Consideration to be received by the VLP Unaffiliated Unitholders pursuant to the Merger Agreement to VLP and to the VLP Unaffiliated Unitholders. It does not address the relative merits of the transactions contemplated by the Merger Agreement as compared to any alternative transaction or opportunity that might be available to VLP, nor does it address the underlying business decision by VLP or VLP GP to engage in the Merger or the terms of the Merger Agreement or the documents referred to therein. Jefferies’ opinion does not constitute a recommendation as to how any VLP Common Unitholder should vote on the Merger or any matter related thereto. The summary of the opinion of Jefferies set forth below is qualified in its entirety by reference to the full text of the opinion.

In arriving at its opinion, Jefferies, among other things:

reviewed certain publicly available financial and other information regarding VLP;
reviewed certain information furnished to Jefferies by the management of VLP GP and VLO relating to the business, operations and prospects of VLP, including the VLP Projections;
held discussions with members of the senior management of VLP GP and VLO concerning the matters described above;
reviewed an execution version, dated October 18, 2018, of the Merger Agreement;
reviewed the unit trading price history and implied trading multiples for VLP and compared them with those of certain publicly traded entities that Jefferies deemed relevant;
compared the proposed financial terms of the Merger with the financial terms of certain other transactions that Jefferies deemed relevant; and
conducted such other financial studies, analyses and investigations as Jefferies deemed appropriate.

In its review and analysis and in rendering its opinion, Jefferies assumed and relied upon, but did not assume any responsibility to independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by VLP GP or that was publicly available to Jefferies (including, without limitation, the information described above), or that was otherwise reviewed by Jefferies. Jefferies relied on assurances of the management and other representatives of VLP GP and VLO that they were not aware of any facts or circumstances that would make such information incomplete, inaccurate or misleading. In its review, Jefferies did not obtain any independent evaluation or appraisal of any of the assets or liabilities (contingent, derivative, off-balance sheet or otherwise) of, nor did Jefferies conduct a physical inspection of any of the properties or facilities of, VLP or any other entity nor was Jefferies furnished with any such evaluations, appraisals or such physical inspections, nor did Jefferies assume any responsibility to obtain any such evaluations, appraisals or physical inspections.

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With respect to the financial forecasts and estimates provided to and examined by Jefferies, including the VLP Projections, Jefferies’ opinion noted that projecting future results of any company is inherently subject to uncertainty. VLP GP informed Jefferies, however, and Jefferies assumed, that the VLP Projections were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of VLP GP and VLO as to the future financial performance of VLP. Jefferies expressed no opinion as to the VLP Projections or the assumptions on which they were based.

Jefferies’ opinion was based on economic, monetary, regulatory, market and other conditions that existed and could be evaluated as of the date of its opinion. Jefferies expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion of which Jefferies became aware after the date of its opinion.

Jefferies made no independent investigation of, and expressed no view or opinion as to, any legal, regulatory, accounting or tax matters affecting or relating to VLP or the Merger, and Jefferies assumed the correctness in all respects meaningful to its analyses and opinion of all legal, regulatory, accounting and tax advice given to VLP, the VLP GP Board or the VLP GP Committee, including, without limitation, with respect to changes in, and the impact of, tax or other laws, regulations and governmental and legislative policies affecting VLP or the Merger and legal, regulatory, accounting and tax consequences to VLP or the VLP Common Unitholders of the terms of, and transactions contemplated by, the Merger Agreement and related documents. Jefferies also assumed that the Merger will be consummated in accordance with the terms of the Merger Agreement, without waiver, modification or amendment of any material term, condition or agreement and in compliance with all applicable laws, documents and other requirements and that in the course of obtaining the necessary governmental, regulatory or third party approvals, consents, waivers and releases for the Merger, including with respect to any divestitures or other requirements, no delay, limitation, restriction or condition will be imposed or occur that would have an adverse effect on VLP or the Merger or that otherwise would be meaningful in any respect to Jefferies’ analyses or opinion.

Jefferies was not authorized to and did not solicit any expressions of interest from any other parties with respect to the sale of all or any part of VLP or any alternative transaction. Jefferies’ opinion did not address the relative merits of the transactions contemplated by the Merger Agreement as compared to any alternative transaction or opportunity that might be available to VLP, nor does it address the underlying business decision by VLP to engage in the Merger or the terms of the Merger Agreement or the documents referred to therein, including the form or structure of the Merger or any term, aspect or implication of any agreements, arrangements or understandings entered into in connection with or contemplated by or resulting from, the Merger or otherwise. Jefferies’ opinion does not constitute a recommendation as to how any securityholder should vote or act with respect to the Merger or any other matter. Jefferies’ opinion was limited to the fairness to VLP and the VLP Unaffiliated Unitholders, from a financial point of view, of the Merger Consideration to be received by the VLP Unaffiliated Unitholders (to the extent expressly specified therein), without regard to individual circumstances of specific holders that may distinguish such holders or the securities of VLP held by such holders, and Jefferies was not asked to, and their opinion did not, address the fairness, financial or otherwise, of any other consideration to the holders of any class of securities, creditors or other constituencies of VLP or any other party. Jefferies’ opinion expressed no view or opinion as to the prices at which Common Units or any other securities of VLP may trade or otherwise be transferable at any time. Furthermore, Jefferies’ opinion did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation or other consideration payable to or to be received by any officers, directors or employees, or any class of such persons, in connection with the Merger relative to the Merger Consideration or otherwise. Jefferies’ opinion was authorized by the Fairness Committee of Jefferies.

In preparing its opinion, Jefferies performed a variety of financial and comparative analyses. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant quantitative and qualitative methods of financial analysis and the applications of those methods to the particular circumstances and, therefore, is not necessarily susceptible to partial analysis or summary description. Jefferies believes that its analyses must be considered as a whole. Considering any portion of Jefferies’ analyses or the factors considered by Jefferies, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying the conclusion expressed in Jefferies’ opinion. In addition, Jefferies may have given various analyses more or less weight than other analyses, and may have deemed various

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assumptions more or less probable than other assumptions, so that the range of valuations resulting from any particular analysis described below should not be taken to be Jefferies’ view of VLP’s actual value. Accordingly, the conclusions reached by Jefferies were based on all analyses and factors taken as a whole and also on the application of Jefferies’ own experience and judgment.

In performing its analyses, Jefferies made numerous assumptions with respect to industry performance, general business, economic, monetary, regulatory, market and other conditions and other matters, many of which are beyond VLP’s and Jefferies’ control. The analyses performed by Jefferies were not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the per unit value of the Common Units does not purport to be an appraisal or to reflect the prices at which the Common Units may actually be sold. The analyses performed were prepared solely as part of Jefferies’ analysis of the fairness, from a financial point of view, of the Merger Consideration to be received by the VLP Unaffiliated Unitholders pursuant to the Merger Agreement to VLP and the VLP Unaffiliated Unitholders, and were provided to the VLP GP Committee in connection with the delivery of Jefferies’ opinion.

Analysis of VLP

The following is a summary of the material financial and comparative analyses performed by Jefferies in connection with Jefferies’ delivery of its opinion and that was presented to the VLP GP Committee on October 18, 2018. The financial analyses summarized below include information presented in tabular format. In order to understand fully Jefferies’ financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Jefferies’ financial analyses.

Jefferies expressly consented to the inclusion in their entirety of its opinion and the materials it presented to the VLP GP Committee as exhibits to the Schedule 13E-3 and to the attachment of its opinion as Annex C to this information statement.

Implied Transaction Premiums and Multiples

Jefferies reviewed certain implied transaction premiums and multiples, based on the Merger Consideration, at a range of prices per Common Unit of $23.00 to $48.66. Jefferies noted that based on a price per Common Unit of $42.25, the implied premium per Common Unit resulting from the Merger was 17% as compared to the closing price of the Common Units on September 20, 2018 which was the last completed trading day prior to VLO’s Initial Proposal to the VLP GP Committee, and approximately 7%, 10%, and 12% as compared with the volume weighted average prices for the ten-day, twenty-day and thirty-day prices as of October 17, 2018, respectively. Jefferies also noted that, based on a price per Common Unit of $42.25, the Merger implies multiples of 2019E and 2020E EBITDA of 13.6x and 14.0x, respectively, based on the Self-Funding Case.

Selected Publicly Traded Companies Analysis

Using publicly available information, selected analyst reports and the VLP Projections, Jefferies analyzed the selected financial data of VLP with similar data of six crude oil and refined products master limited partnerships with no incentive distribution rights and four crude oil and refined products MLPs with incentive distribution rights that Jefferies judged to be comparable to VLP for purposes of its valuation analysis. These partnerships, which are referred to as comparable public partnerships, were selected because they were deemed to be similar to VLP in one or more respects, including the nature of their business, size, diversification and financial performance. No specific numeric or other similar criteria were used to select the comparable public partnerships and all criteria were evaluated in their entirety without application of definitive qualifications or limitations to individual criteria. As a result, a significantly larger or smaller partnership with substantially similar lines of business and business focus may have been included while a similarly sized partnership with less similar lines of business and greater diversification may have been excluded. The comparable public partnerships consisted of:

Comparable public partnerships without IDRs

MPLX LP

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Magellan Midstream Partners, L.P.
Andeavor Logistics LP
Buckeye Partners, L.P.
NuStar Energy L.P.
Holly Energy Partners, L.P.

Comparable public partnerships with IDRs

Phillips 66 Partners LP
Shell Midstream Partners, L.P.
PBF Logistics LP
Delek Logistics Partners, LP

No comparable public partnership utilized in the comparable public partnership analysis is identical to VLP. In evaluating the selected comparable public partnerships, Jefferies made numerous judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond VLP’s and Jefferies’ control. Mathematical analysis, such as determining the median, is not in itself a meaningful method of using comparable company data.

In its analysis, Jefferies derived and compared distribution yields for VLP and the selected comparable public partnerships as of October 17, 2018. This analysis indicated the following average and median reference ranges for the benchmarks as set forth below:

 
Average
Median
Selected Public Partnerships without IDRs
 
 
 
 
 
 
Current Distribution Yield
9.0%
8.6%
2019E Distribution Yield
8.6%
8.9%
 
 
 
Selected Public Partnerships with IDRs
 
 
Current Distribution Yield
7.9%
8.0%
2019E Distribution Yield
8.9%
8.8%
 
 
 
All Selected Public Partnerships
 
 
Current Distribution Yield
8.6%
8.6%
2019E Distribution Yield
8.7%
8.9%

Using the reference ranges for the benchmarks set forth below, which ranges were selected by Jefferies in its professional judgment, Jefferies determined the implied per Common Unit value ranges as follows:

VLP Benchmark
Range
Implied Per Common Unit
Value Range
Current Distribution Yield
6.5% – 5.5%
$33.91 – $40.07
2019E Distribution Yield – Self Funding Case
7.0% – 6.0%
$34.21 – $39.92
2019E Distribution Yield – Market Recovery Case
7.0% – 6.0%
$35.24 – $41.12

Discounted Cash Flow Analysis

Jefferies performed a discounted cash flow analysis to estimate the present value of distributable cash flows of VLP from calendar year 2019 through calendar year 2022 using the Self-Funding Projections and Market Recovery Projections, discount rates of 11% and 12% and terminal yield values of 6% and 7%.

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The discounted cash flow analysis indicated a range of implied present values per Common Unit of $32.23 to $47.08 as set forth below:

Management Forecast
Implied Value per Common Unit
Reference Range
Self-Funding Case
$32.23 – $37.15
Market Recovery Case
$40.65 – $47.08

Selected Transactions Analysis

Using publicly available information, Jefferies analyzed the premiums offered in 26 selected mergers involving affiliate MLPs announced since June 2009, which are collectively referred to as the selected comparable transactions:

Date
Buyer
Seller
09/18/18
Enbridge Inc.
Enbridge Energy Partners, L.P.
08/24/18
Enbridge Inc.
Spectra Energy Partners, LP
08/01/18
Energy Transfer Equity, L.P.
Energy Transfer Partners, L.P.
06/19/18
Cheniere Energy, Inc.
Cheniere Energy Partners LP Holdings, LLC
05/17/18
The Williams Companies, Inc.
Williams Partners L.P.
04/26/18
EQT Midstream Partners, LP
Rice Midstream Partners, LP
03/27/18
Tallgrass Energy GP, LP
Tallgrass Energy Partners, LP
01/02/18
Archrock, Inc.
Archrock Partners, L.P.
02/01/17
ONEOK Inc
ONEOK Partners, L.P.
11/21/16
Sunoco Logistics Partners, L.P.
Energy Transfer Partners, L.P.
11/01/16
TransCanada Corporation
Columbia Pipeline Partners LP
08/01/16
Transocean Ltd.
Transocean Partners LLC
05/31/16
SemGroup Corporation
Rose Rock Midstream, L.P.
12/21/15
Western Refining, Inc.
Northern Tier Energy, LP
11/03/15
Targa Resources Corp.
Targa Resources Partners LP
05/06/15
Crestwood Equity Partners LP
Crestwood Midstream Partners LP
01/26/15
Energy Transfer Partners, L.P.
Regency Energy Partners LP
11/12/14
Enterprise Products Partners LP
Oiltanking Partners, L.P.
10/26/14
Access Midstream Partners, L.P.
Williams Partners L.P.
08/10/14
Kinder Morgan, Inc.
El Paso Pipeline Partners, L.P.
 
 
Kinder Morgan Energy Partners, L.P.
 
 
Kinder Morgan Management, LLC
08/27/13
Plains All American Pipeline, L.P.
PAA Natural Gas Storage, L.P.
07/11/11
Vanguard Natural Resources LLC
Encore Energy Partners LP
02/23/11
Enterprise Products Partners L.P.
Duncan Energy Partners L.P.
06/29/09
Enterprise Products Partners L.P.
TEPPCO Partners, L.P.

For each of the selected comparable transactions, Jefferies calculated the premium represented by the offer price over the target company’s closing unit price one trading day, seven trading days and 30 trading days prior to the transaction’s announcement. The analysis indicated the following premiums for those time periods prior to announcement:

Time Period Prior to Announcement
75th Percentile
Mean
Median
25th Percentile
1 Trading Day
 
16.8
%
 
10.8
%
 
9.2
%
 
5.5
%
7 Trading Days Average
 
17.7
%
 
11.4
%
 
10.2
%
 
5.2
%
30 Trading Days Average
 
17.1
%
 
12.1
%
 
9.4
%
 
6.6
%

Using the reference ranges for each of the 25th percentile to the 75th percentile premiums for each of the transaction categories listed above, Jefferies performed a premiums paid analysis using the closing prices of the Common Units one trading day, seven trading days and 30 trading days prior to October 18, 2018. This analysis indicated a range of implied prices for Common Units of $40.27 to $46.30.

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Other Written Presentations by Jefferies

In addition to the presentation made to the VLP GP Committee on October 18, 2018, the date on which Jefferies delivered its fairness opinion, as described above, Jefferies made an introductory written and oral presentation to the VLP GP Committee on October 4, 2018 and a supplemental written and oral presentation to the VLP GP Committee on October 8, 2018. Jefferies’ introductory presentation on October 4, 2018 did not contain all of the financial analyses listed above. The information contained in the written and oral presentation made to the VLP GP Committee on October 8, 2018 is substantially similar to the information provided in Jefferies’ written presentation to the VLP GP Committee on October 18, 2018, as described above.

General

Jefferies’ opinion was one of many factors taken into consideration by the VLP GP Committee in making its determination to approve the Merger and should not be considered determinative of the views of the VLP GP Board or VLP management with respect to the Merger or the Merger Consideration.

Jefferies was selected by the VLP GP Committee based on Jefferies’ qualifications, expertise and reputation. Jefferies is an internationally recognized investment banking and advisory firm. Jefferies, as part of its investment banking business, is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, financial restructurings and other financial services.

The opinion of Jefferies and the presentations Jefferies made to the VLP GP Committee will be made available for inspection and copying at the principal executive offices of VLP during regular business hours by any interested VLP Common Unitholder or such VLP Common Unitholder’s representative who has been so designated in writing.

VLP has paid Jefferies a fee of approximately $2,500,000, $350,000 of which was paid upon the execution of its engagement letter and $2,150,000 of which was paid upon delivery of Jefferies’ opinion. VLP has also agreed to reimburse Jefferies for certain expenses incurred. VLP has also agreed to indemnify Jefferies against certain liabilities arising out of or in connection with the services rendered and to be rendered by it under its engagement. Jefferies has not, in the past two years, provided financial advisory and/or financing services to VLP, VLP GP or VLO. Jefferies did not, as of the date of its opinion, maintain a market in the securities of VLP or VLO, but in the ordinary course of business, Jefferies and its affiliates may trade or hold securities of VLP of VLO for its own account and for the accounts of its customers and, accordingly, may at any time hold long or short positions in those securities. In addition, in the future Jefferies may seek to provide financial advisory and financing services to VLP, VLO or entities that are affiliated with VLP or VLO, for which Jefferies would expect to receive compensation. Jefferies’ opinion was furnished for the use and benefit of the VLP GP Committee in connection with its consideration of the Merger and was not intended to be used for any other purpose, without Jefferies’ prior written consent.

J.P. Morgan Financial Advisor Materials

Pursuant to an engagement letter dated as of September 14, 2018, VLO retained J.P. Morgan as its financial advisor in connection with the potential merger transaction. J.P. Morgan prepared a presentation that was provided to VLO management on September 17, 2018 and subsequently provided to the VLO Board in connection with the Merger (the “J.P. Morgan Materials”).

The full text of the J.P. Morgan Materials has been filed as an exhibit to the Schedule 13E-3 and incorporated herein by reference. J.P. Morgan expressly consented to the inclusion in their entirety of the J.P. Morgan Materials as an exhibit to the Schedule 13E-3 and to their incorporation by reference in this information statement. The summary of the J.P. Morgan Materials set forth in this information statement is qualified in its entirety by reference to the full text of such materials. The VLP Common Unitholders are urged to read the J.P. Morgan Materials carefully and in its entirety. The J.P. Morgan Materials were intended solely to assist the VLO Board’s evaluation of the Merger. J.P. Morgan was not requested to provide, and J.P. Morgan did not provide, to VLO, VLP, the stockholders of VLO or the VLP Common Unitholders, or any other person (i) any opinion as to the fairness of the Merger (including, without limitation, the fairness of the Merger Consideration), (ii) any other valuation of VLO or VLP for the purpose of assessing the fairness of the Merger Consideration to any such person or (iii) any recommendation as to how a VLP Common Unitholder should vote on the Merger. Because

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J.P. Morgan was not requested to, and did not, deliver a fairness opinion in connection with the Merger, it did not follow all of the procedures in preparing the J.P. Morgan Materials that it would ordinarily follow in connection with delivering an opinion. The J.P. Morgan Materials were prepared solely for the VLO Board and do not constitute a recommendation as to how any VLP Common Unitholder should vote with respect to the Merger or any other matter and should not be relied on as the basis for any investment decision.

In preparing the J.P. Morgan Materials, J.P. Morgan, among other things:

reviewed certain publicly available business and financial information concerning VLP and the industry in which it operates;
reviewed publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the merger consideration paid for such companies;
compared the financial and operating performance of VLP with publicly available information concerning other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of VLP’s Common Units and certain publicly traded securities of such other companies;
reviewed certain financial forecasts prepared by or at the direction of the management of VLO relating to VLP's business; and
performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate.

In addition, J.P. Morgan held discussions with certain members of the management of VLO with respect to certain aspects of the Merger, the past and current business operations of VLP, the financial condition and future prospects and operations of VLP and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

In preparing the J.P. Morgan Materials, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by VLO or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (and did not assume responsibility or liability for independently verifying) any such information or its accuracy or completeness. No representation or warranty, express or implied, was made by J.P. Morgan in relation to the accuracy or completeness of the information presented in the J.P. Morgan Materials or their suitability for any particular purpose. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities of VLO, VLP or any other company or business, nor did J.P. Morgan evaluate the solvency of VLO, VLP or any other company or business under any applicable laws relating to bankruptcy, insolvency or similar matters. In relying on the financial analyses and forecasts provided to J.P. Morgan or derived therefrom, J.P. Morgan assumed, at VLO’s direction, that such financial analyses and forecasts were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of VLP to which such financial analyses and forecasts relate. J.P. Morgan expressed no view as to such financial analyses and forecasts or the assumptions on which they were based. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to VLO with respect to such issues.

The matters considered by J.P. Morgan in its analyses and reflected in the J.P. Morgan Materials were necessarily based on economic, market, industry, operating and other conditions as in effect on the respective dates of such materials. Many such conditions are beyond the control of VLO, VLP and J.P. Morgan. Accordingly, these analyses are inherently subject to uncertainty, and none of VLO, VLP, J.P. Morgan or any other person assumes responsibility if future results are different from those forecasted. J.P. Morgan did not assume any obligation to update, revise, or reaffirm its financial analyses or the contents of the J.P. Morgan Materials.

The terms of the Merger Agreement, including the Merger Consideration, were determined through negotiations between VLO and VLP, and the decision to enter into the Merger Agreement was solely that of the VLO Special Committee, acting on behalf of the VLO Board, the VLP GP Committee and the VLP GP Board. J.P. Morgan’s financial analyses were only one of the many factors considered by the VLO Board in its evaluation of the proposed Merger and should not be viewed as determinative of the views of the VLO Board or management with respect to the proposed Merger or the Merger Consideration.

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VLO management provided J.P. Morgan with the VLP Projections (for a more detailed discussion of the VLP Projections, see “Special Factors—Unaudited Financial Projections of VLP”). The Market Recovery Case and the Self-Funding Case are referred to within the text of the J.P. Morgan Materials as the “Dropdown growth case” and the “Self-Funded growth case,” respectively. VLO management instructed J.P. Morgan to utilize each such set of projections for purposes of its financial analysis of the Merger and preparation of the J.P. Morgan Materials. In addition, VLO management directed J.P. Morgan to compute a probability-weighted case (the “Probability-Weighted Case”) with a 50% probability weighting assigned to each of the Market Recovery Projections and Self-Funding Projections.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methodology in preparing the financial analyses contained in the J.P. Morgan Materials. The following is a summary of certain material financial analyses contained in the J.P. Morgan Materials. The following summary, however, does not purport to be a complete description of the financial analysis presented by J.P. Morgan. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s analyses.

Public Trading Multiples Analysis

Using publicly available information, J.P. Morgan compared selected financial data of VLP with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be sufficiently analogous to VLP.

The companies selected by J.P. Morgan for purposes of its analysis (collectively, the “VLP Selected Companies”) were (i) Andeavor Logistics LP (“ANDX”), BP Midstream Partners LP (“BPMP”), Phillips 66 Partners LP (“PSXP”) and Shell Midstream Partners, L.P. (“SHLX”) (collectively, the “Selected Market Recovery Case Companies”) and (ii) Holly Energy Partners, L.P. (“HEP”) and MPLX LP (“MPLX”) (collectively, the “Selected Self-Funding Case Companies”). The VLP Selected Companies were chosen because they are publicly traded, sponsored crude oil logistics companies that operate in similar locations or share similar operational characteristics with VLP. The Selected Market Recovery Case Companies were selected for purposes of J.P. Morgan’s analyses utilizing the Market Recovery Projections because the chosen companies rely on drop downs as one of their main sources of funding, whereas the Selected Self-Funding Case Companies were chosen in respect of the Self-Funding Projections because those companies primarily fund growth organically. The VLP Selected Companies may be considered similar to VLP based on the nature of their assets and operations; however, none of the companies selected is identical or directly comparable to VLP, and certain of these companies may have characteristics that are materially different from those of VLP. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than they would affect VLP.

For each company listed above, J.P. Morgan calculated and compared various financial multiples and ratios based on publicly available information as of September 14, 2018. For each of the following analyses performed, J.P. Morgan estimated financial data for the selected companies based on (except as otherwise noted) the Market Recovery Projections and Self-Funding Projections (in the case of VLP) and information obtained from FactSet Research Systems and broker estimates (in the case of the VLP Selected Companies). The information J.P. Morgan calculated for each of the selected companies included:

Multiple of price (using the unit price as of September 14, 2018) to estimated distributable cash flow (“DCF”) per common unit (calculated by running total DCF through the company’s distribution waterfall), in each case, for the years ending December 31, 2019 and 2020; and
The estimated calendar year 2019 and 2020 distribution yields, calculated as the estimated distribution per common unit divided by the common unit price as of September 14, 2018.

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Results of the analysis with respect to the Selected Market Recovery Case Companies are as follows:

Selected Market Recovery Case Companies

 
Price / Estimated DCF
Per Common Unit
Estimated
Distribution Yield
 
2019E
2020E
2019E
2020E
ANDX
 
11.2x
 
 
10.2x
 
 
8.9
%
 
9.3
%
PSXP
 
13.4x
 
 
11.9x
 
 
6.8
%
 
7.4
%
SHLX
 
12.1x
 
 
11.2x
 
 
8.0
%
 
8.4
%
BPMP
 
11.4x
 
 
10.9x
 
 
6.8
%
 
7.8
%

Results of the analysis with respect to the Selected Self-Funding Case Companies are as follows:

Selected Self-Funding Case Companies

 
Price / Estimated DCF
Per Common Unit
Estimated
Distribution Yield
 
2019E
2020
2019E
2020E
MPLX
 
10.3x
 
 
9.9x
 
 
7.5
%
 
7.9
%
HEP
 
11.5x
 
 
11.4x
 
 
8.7
%
 
8.7
%

J.P. Morgan also calculated the same financial multiples and ratios for VLP using VLP’s market price as of September 14, 2018 based on the Market Recovery Projections, the Self-Funding Projections and selected equity research reports (referred to as “street consensus” in the below table).

 
Price / Estimated DCF
Per Common Unit
Estimated
Distribution Yield
 
2019E
2020E
2019E
2020E
Market Recovery Projections
 
12.1x
 
 
11.0x
 
 
6.8
%
 
7.5
%
Self-Funding Projections
 
12.1x
 
 
12.6x
 
 
6.6
%
 
6.7
%
Street Consensus
 
11.8x
 
 
11.4x
 
 
7.2
%
 
7.7
%

J.P. Morgan did not rely solely on the quantitative results of the selected public company analysis, but also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of VLP and the selected companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, geography, corporate structure, growth prospects, asset profiles and capital structures between VLP and the companies included in the public trading multiples analysis. Based upon these judgments, J.P. Morgan selected multiple reference ranges for (i) the Market Recovery Case of 11.5x–13.5x and 11.0x–12.0x for price to estimated 2019 and 2020 DCF per Common Unit, respectively, and ranges of 6.75%–8.0% and 7.5%–8.5% for estimated 2019 and 2020 distribution yields, respectively, and (ii) the Self-Funding Case of 10.0x–11.5x and 10.0x–11.5x for price to estimated 2019 and 2020 DCF per Common Unit, respectively, and ranges of 7.5%–8.75% and 8.0%–8.75% for estimated 2019 and 2020 distribution yields, respectively.

After applying such ranges to the appropriate metrics for VLP based on the Market Recovery Projections and Self-Funding Projections, the analysis indicated the following implied equity value per unit ranges for Common Units (resulting per unit values were in all cases rounded to the nearest $0.25 per unit):

Market Recovery Case Implied Equity Value Per Common Unit Range

 
Unit Price /
Estimated DCF
Per Common Unit
Estimated
Distribution Yield
 
2019E
2020E
2019E
2020E
Low
$
34.25
 
$
36.00
 
$
30.75
 
$
32.00
 
High
$
40.25
 
$
39.25
 
$
36.50
 
$
36.25
 

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Self-Funding Case Implied Equity Value Per Common Unit Range

 
Unit Price /
Estimated DCF
Per Common Unit
Estimated
Distribution Yield
 
2019E
2020E
2019E
2020E
Low
$
29.75
 
$
28.75
 
$
27.25
 
$
27.50
 
High
$
34.25
 
$
33.00
 
$
32.00
 
$
30.25
 

As instructed by VLO management, J.P. Morgan also computed the implied equity value per unit ranges for Common Units in the Probability-Weighted Case, the results of which are as follows:

Probability-Weighted Case Implied Equity Value Per Common Unit Range

 
Unit Price /
Estimated DCF
Per Common Unit
Estimated
Distribution Yield
 
2019E
2020E
2019E
2020E
Low
$
32.00
 
$
32.25
 
$
29.00
 
$
29.75
 
High
$
37.25
 
$
36.25
 
$
34.25
 
$
33.25
 

The foregoing ranges of implied equity values per Common Unit were compared to the Common Unit closing price of $36.05 on September 14, 2018.

Transaction Multiples Analysis

Using publicly available information, J.P. Morgan examined selected related party precedent transactions involving MLPs announced since 2015. For purposes of this analysis, J.P. Morgan selected the transactions that J.P. Morgan considered most relevant to its analysis due to the similarity of their participants, size and other factors to the arrangement and identified a number of transactions that were, in its judgment, sufficient to permit J.P. Morgan to conduct its analysis; J.P. Morgan did not, however, attempt to identify all transactions that may be similar to the Merger.

For each of the selected transactions for which the relevant information was publicly available, among other calculations, J.P. Morgan calculated the multiple of price (using the unit price) to DCF per common unit (calculated by running total DCF through the applicable distribution waterfall).

Based on the results of this analysis, J.P. Morgan selected reference ranges for VLP for purposes of the Market Recovery Case and Self-Funding Case of 11.5x–16.0x and 9.0x–13.0x, respectively, for the price to DCF per common unit.

After applying the applicable range to the estimated next twelve months DCF per common unit for the period beginning September 30, 2018 for VLP based on the Market Recovery Projections, the analysis indicated an implied equity value per Common Unit range for VLP of $33.50 and $46.50 per unit.

Applying the relevant range to the estimated next twelve months DCF per common unit for the period beginning September 30, 2018 for VLP based on the Self-Funding Projections, yielded an indicated range of implied equity values per Common Unit of between $26.25 and $37.75 per unit.

As instructed by VLO management, J.P. Morgan also computed an implied equity value per unit range for Common Units in the Probability-Weighted Case. After applying such weighting, J.P. Morgan arrived at an estimated range of implied equity values per Common Unit of between $29.75 and $42.25 per unit.

The foregoing ranges of implied equity values per Common Unit were then compared to the Common Unit closing price of $36.05 on September 14, 2018.

Discounted Distributions Analysis

J.P. Morgan conducted a distribution discount analysis for the purpose of determining an implied fully diluted equity value per unit for the Common Units. A distribution discount analysis is a method of evaluating the implied equity value of a company using estimates of the future distributions per limited partner unit generated by the company and taking into consideration the time value of money with respect to those future

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distributions by calculating their “present value.” “Present value” refers to the current value of future distributions per limited partner unit to unitholders, and is obtained by discounting those future distributions per limited partner unit back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital, capitalized returns and other appropriate factors. “Terminal value” refers to the capitalized value of all distributions per limited partner unit for periods beyond the final forecast period.

J.P. Morgan calculated the present value of the future distributions to limited partners that VLP is expected to generate during the period from calendar year 2018 through the end of 2023 using the Market Recovery Projections and the Self-Funding Projections for the calendar year 2018 through the end of 2022 and extrapolations therefrom for calendar year 2023, in each case, reviewed and approved by VLO management for use in J.P. Morgan’s analysis.

J.P. Morgan also calculated a range of terminal values for VLP at December 31, 2023 under both the Market Recovery Case and Self-Funding Case by applying a terminal growth rate ranging from 1.0% to 2.0% to the projected final year distribution streams of VLP reflected in the extrapolations of the Market Recovery Projections and the Self-Funding Projections, as applicable, to derive a range of terminal period distributions. The distribution streams and range of terminal values under each case were then discounted to present values using a discount rate range of 8.0% to 9.0%, which range was chosen by J.P. Morgan based upon an analysis of the cost of implied equity of VLP. For purposes of its discounted distributions analysis, J.P. Morgan assumed a valuation date of September 30, 2018. The present value of the estimated future distributions and the range of terminal values for VLP to indicate the range of implied equity values set forth in the table below (rounded to the nearest $0.25):

 
Implied Equity Value Per
Common Unit
Market Recovery Case
$40.25 – $ 51.75
Self-Funding Case
$32.75 – $ 42.00

As instructed by VLO management, J.P. Morgan also computed an implied equity value per unit range for Common Units in the Probability-Weighted Case. After applying such weighting, J.P. Morgan arrived at an estimated range of implied equity values per Common Unit of between $36.50 and $47.00 per unit.

The foregoing ranges of implied equity values per Common Unit were compared to the Common Unit closing price of $36.05 on September 14, 2018.

While the discounted distributions analysis is a widely accepted and practiced valuation methodology, it relies on a number of assumptions, including growth rates, terminal values and discount rates. The implied valuation range derived from the discounted distributions analysis is not necessarily indicative of VLP’s present or future value or results.

Miscellaneous

J.P. Morgan provided advice to the VLO Board in connection with the Merger. As described above, however, J.P. Morgan was not asked to, and did not, render any opinion relating to the Merger Consideration or the fairness of the Merger. J.P. Morgan’s financial analyses were one of many factors taken into consideration by the VLO Board in deciding to approve the Merger.

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data prepared by J.P. Morgan. The preparation of financial analyses is a complex process involving subjective judgments and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above were merely utilized to create points of reference for analytical purposes and should not be taken to be the view of J.P. Morgan with respect to the actual value of VLP. The order of analyses described does not represent the relative importance or weight given to

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those analyses by J.P. Morgan. Except as instructed by VLO management with respect to the Probability-Weighted Case, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis.

Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be acquired or sold.

As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes. J.P. Morgan was selected to advise VLO with respect to the Merger on the basis of, among other things, such experience and its qualifications and reputation in connection with such matters and its familiarity with VLO, VLP and the industries in which they operate.

Pursuant to the engagement letter, J.P. Morgan will receive a fee from VLO of $7.0 million for its financial advisory services rendered in connection with the Merger, all of which is contingent upon the consummation of the transaction. In addition, VLO has agreed to reimburse J.P. Morgan for its expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities arising out of J.P. Morgan’s engagement.

During the two years preceding the date of J.P. Morgan’s presentation, J.P. Morgan and its affiliates have had commercial or investment banking relationships with VLO and VLP for which J.P. Morgan and such affiliates have received customary compensation. Such services during such period have included acting as joint lead bookrunner on VLO’s offerings of debt securities, which closed in May 2018 and September 2016 and joint lead bookrunner on VLP’s offering of debt securities, which closed in December 2016. In addition, J.P. Morgan’s commercial banking affiliate is an agent bank and a lender under outstanding credit facilities of VLO and VLP, for which it receives customary compensation or other financial benefits. In addition, J.P. Morgan and its affiliates hold, on a proprietary basis, less than 1% of the outstanding common stock of VLO and 2.52% of the outstanding common stock of VLP. During the two year period preceding delivery of its presentation ending on August 30, 2018, the aggregate fees received by J.P. Morgan from VLO were approximately $2.5 million and from VLP were approximately $680,000. In the ordinary course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities or financial instruments (including derivatives, bank loans or other obligations) of VLO or VLP for their own accounts or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities.

Position of the Valero Parties, the VLP GP Board and the VLP GP Committee as to the Fairness of the Merger

Under the rules governing “going private” transactions, each of VLO, VTDC, Contribution Sub and Merger Sub (collectively, the “Valero Parties”), and VLP and VLP GP are deemed to be engaged in a “going private” transaction and are required to express their beliefs as to the fairness of the Merger to the VLP Unaffiliated Unitholders pursuant to Rule 13e-3 under the Exchange Act. The Valero Parties, the VLP GP Committee and the VLP GP Board, acting on behalf of VLP GP and VLP, are making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The VLP GP Board delegated to the VLP GP Committee the power and authority to review, evaluate and make a recommendation to the VLP GP Board with respect to, the proposed transaction, which included the power to negotiate, or delegate to any person the ability to negotiate, the terms and conditions of the proposed transaction and to determine whether the proposed transaction is fair and reasonable to the VLP Unaffiliated Unitholders and in the best interest of VLP.

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None of VLO, VTDC, Contribution Sub or Merger Sub undertook an independent evaluation of the fairness of the Merger to the VLP Unaffiliated Unitholders or engaged a financial advisor for such purpose. However, each of the Valero Parties, and the VLP GP Committee and VLP GP, acting on behalf of VLP GP and VLP, believe that the Merger is substantively and procedurally fair to the VLP Unaffiliated Unitholders based on the procedural safeguards implemented during the negotiation of the Merger Agreement, which include:

the authorization of the VLP GP Committee to (i) review and evaluate the terms and conditions, and determine the advisability, of the proposed transaction, (ii) negotiate, or delegate the ability to negotiate to any persons, with any party the VLP GP Committee deems appropriate, with respect to the terms and conditions of the proposed transaction, (iii) determine whether to give or withhold the VLP GP Committee’s approval of the proposed transaction, including by “Special Approval” (as such term is defined in the VLP Partnership Agreement), (iv) make a recommendation to the VLP GP Board whether to approve the proposed transaction, (v) determine whether the proposed transaction is fair and reasonable to the VLP Unaffiliated Unitholders, and in the best interest of VLP and (vi) retain independent professional advisors;
a requirement in such authorization that the VLP GP Committee exercise independent business judgment in the fulfillment of its duties, which were expressly defined not to include any duty to consider the interests of VLP GP or its controlling affiliates, including VLO, or any person other than the VLP Unaffiliated Unitholders or VLP in reviewing, evaluating and making recommendations, giving approvals or taking any other action with respect to the proposed transaction; and
the other factors considered by, and the analysis, discussion and resulting conclusions of the VLP GP Committee and the VLP GP Board described in the section entitled “—Recommendation of the VLP GP Committee and the VLP GP Board; Reasons for Recommending Approval of the Merger Agreement and the Merger Transactions,” which analysis, discussion and resulting conclusions the Valero Parties expressly adopt as their own.

The foregoing discussion of the information and factors considered and given weight by the Valero Parties, the VLP GP Committee and the VLP GP Board, acting on behalf of VLP GP and VLP, is not intended to be exhaustive, but includes the factors considered by the Valero Parties, the VLP GP Committee and the VLP GP Board, acting on behalf of VLP GP and VLP, that each believes to be material to the fairness determination regarding the fairness of the Merger for the purpose of complying with the requirements of Rule 13e-3 and the related rules under the Exchange Act. The Valero Parties, the VLP GP Board and the VLP GP Committee did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the Merger. Rather, the Valero Parties, the VLP GP Committee and the VLP GP Board, acting on behalf of VLP GP and VLP, made their fairness determination after considering all of the factors as a whole.

Valero Parties’ Purpose and Reasons for the Merger

The Valero Parties’ purpose and reasons for the Merger include, but are not limited to:

A Simplified Corporate Governance Structure. The Merger will result in VLO ultimately owning all of the equity interests of VLP through the holdings of its affiliates VTDC and Contribution Sub. The Merger will enable VLO to focus on managing the assets of VLP for VLO and its stockholders, as well as VLO’s dividend policies, growth story, costs, debt ratings and structural subordination of indebtedness within the corporate family.
Reduced Administrative Burden. Following the consummation of the Merger, VLO, as the sole ultimate parent of VLP GP, VTDC and Contribution Sub, will indirectly own all of the limited partner interests, general partner interests and IDRs of VLP. This is expected to allow synergies to occur through the streamlining of general and administrative expenses and eliminated costs associated with the Common Units being publicly traded.
Eliminates the Concern over VLP’s Access to Equity Capital Markets. Since the initial public offering of its Common Units and the resulting market dislocation in the MLP market, VLP has had its cost of capital increase. The absence of a public equity market for MLPs is also concerning because the ability to access equity capital markets was a key component in the determination to form VLP and pursue an initial public offering of its Common Units.

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Guarantee of VLO’s Control over Key Assets. VLP’s assets include crude oil and refined petroleum products pipeline and terminal systems in the Gulf Coast and Mid-Continent regions of the U.S. that are integral to the operations of ten of VLO’s refineries. Following the consummation of the Merger VLO will indirectly own all of the equity interests of VLP, which ensures VLO’s control over VLP’s assets.
Accretion to VLO. VLO management believes that the Merger will be accretive to VLO’s earnings per share and cash flow per share.

The Valero Parties have undertaken to pursue the Merger at this time for the purpose and reasons described above.

The Valero Parties believe that structuring the transaction as a merger transaction is preferable to other transaction structures because (i) it will enable VLO to acquire all of the outstanding Public Units held by the VLP Public Unitholders at the same time and (ii) it represents an opportunity for the VLP Unaffiliated Unitholders to receive cash for their Common Units in the form of the Merger Consideration. Additionally, VTDC ultimately controls the VLP GP Board, and VTDC and Contribution Sub own a sufficient number of Common Units to approve the Merger Agreement and the Merger Transactions on behalf of the VLP Common Unitholders without the need to solicit the approval of other VLP Common Unitholders, each of which provides greater deal certainty. Further, the Valero Parties believe that structuring the transaction as a merger transaction provides a prompt and orderly transfer of ownership of VLP in a single step, without the necessity of financing separate purchases of the Common Units in a tender offer and implementing a second-step merger to acquire any Common Units not tendered into any such tender offer, and without incurring any additional transaction costs associated with such activities.

The foregoing discussion of the information and factors considered by the Valero Parties is not intended to be exhaustive, but includes the material factors considered by the Valero Parties. In view of the variety of factors considered in connection with their evaluation of the Merger, the Valero Parties did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching their determination. The Valero Parties did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support their ultimate determination. The Valero Parties based their determination on the totality of the information presented.

Effects of the Merger

Pursuant to the Merger Agreement, Merger Sub, a wholly owned subsidiary of VTDC, will merge with and into VLP, with VLP surviving the Merger and continuing to exist as a Delaware limited partnership, and each Public Unit issued and outstanding immediately prior to the Effective Time will be converted into the right to receive $42.25 in cash, without interest. If the Merger is completed, (i) VLP Public Unitholders (including the VLP Unaffiliated Unitholders) will no longer have an equity interest in VLP, (ii) the Common Units will no longer be listed on the NYSE, (iii) the Common Units will be deregistered under the Exchange Act as promptly as practicable following the Effective Time and (iv) VLO, as the sole ultimate parent of VLP GP, VTDC and Contribution Sub, will indirectly own all of the limited partner interests, general partner interests and IDRs of VLP.

The limited liability company interests in Merger Sub issued and outstanding immediately prior to the Effective Time will be cancelled and cease to exist, and no consideration will be delivered in respect thereof. At the Effective Time, the books and records of VLP will be revised to reflect (i) the cancellation and retirement of all Common Units that were converted into the right to receive the Merger Consideration and that, immediately following the Effective Time, VTDC and Contribution Sub will be the only holders of Common Units and (ii) that the existence of VLP will continue without dissolution.

VLP’s general partner interests and IDRs, and the Common Units owned by VTDC and Contribution Sub, in each case that are issued and outstanding immediately prior to the Effective Time, will be unaffected by the Merger and will remain outstanding and no consideration will be paid or delivered in respect thereof.

As a result and upon consummation of the Merger, VLP will cease to be a publicly traded MLP and the Common Units will no longer be traded on the NYSE. The current unitholders of VLP (other than VLP GP, VTDC and Contribution Sub) will no longer have any interest in VLP’s future earnings or growth. The Merger will have the federal tax consequences described under “Material U.S. Federal Income Tax Considerations.”

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In addition, as a result and upon consummation of the Merger, VLO, as the sole ultimate parent of VLP GP, VTDC and Contribution Sub, will indirectly own all of the limited partner interests, general partner interests and IDRs of VLP. The following table sets forth, among other things, the number of units representing partnership interests owned directly (unless otherwise noted) by each affiliate of VLP before and after the Effective Time of the Merger, as well as such entity’s interest in the net book value and net income of VLP.

Merger Sub is not reflected on the table below because it did not own any Common Units before the Effective Time, and, at the Effective Time, the limited liability company interests in Merger Sub issued and outstanding immediately prior to the Effective Time will be cancelled and cease to exist.

 
Pre-Merger
Post-Merger
 
Units(1)
Interest in
Net Book
Value(2)
Percentage
Interest in
Net Book
Value
Interest in
Net
Income(3)
Percentage
Interest in
Net
Income
Units(1)
Interest in
Net Book
Value(2)
Percentage
Interest in
Net Book
Value
Interest in
Net
Income(3)
Percentage
Interest in
Net
Income
 
 
(in millions)
 
(in millions)
 
 
(in millions)
 
(in millions)
 
VLO(4)
 
48,182,097
 
$
190
 
 
68.17
%
$
137
 
 
68.17
%
 
48,182,097
 
$
279
 
 
100.00
%
$
200
 
 
100.00
%
VTDC(5)
 
48,182,097
 
$
190
 
 
68.17
%