In 2001 China practice for international law firms was all about inbound dealsadvising multinationals making investments in the developing economy. Most Western lawyers counted themselves happy to have the same clients in China that they had back home. Vinson & Elkins's China-based lawyers were no different, representing regular clients of the firm such as BP plc, Coastal Energy, and the soon-to-be-infamous Enron Corp. in exploration and production deals. But at a strategy session held at the suburban Beijing home of then-partner Handel Lee, V&E's China team decided to follow a different path.
"At that point in time we did zero work for the state-owned enterprises [SOEs]," recalls James Cuclis, Vinson & Elkins's Hong Kongbased corporate head. The largest companies in China, the SOEs dominate sectors like banking, steel, and telecommunicationsand energy. "We decided at that meeting that our number one priority for the China practice was to target those companies."
Today virtually all international firms say they are targeting the rising tide of Chinese investment abroad. But Vinson's early move in that direction has put it at the forefront of the outbound boom. According to the most recent Global 100 survey by The American Lawyer, the 700-lawyer Houston-based firm has handled more cross-border China mergers and acquisitions deals by value than any firm anywhere in the last two years ["Nouveau Riche," The American Lawyer, October].
Much of that is due to its close ties with the SOEs. Last year the firm advised China Petroleum & Chemical Corporation, better known as Sinopec, on more than two-thirds of the $15 billion in cross-border deals the company undertook. In 2009 V&E also advised Sinopec on its $7.3 billion acquisition of Canadian oil exploration company Addax Petroleum Corporation, the largest completed overseas deal ever for a Chinese company, as of press time. "Vinson & Elkins is our first-tier partnership," says Shao Jingyang, general counsel for Sinopec's international exploration division. "Most times, we will give V&E the first chance to work with us on cross-border M&A, especially in North America."
Vinson also frequently advises the other Big Three Chinese state-owned oil giants, China National Petroleum Corporation, also known as Petrochina, and China National Offshore Oil Corporation (CNOOC). In 2011 the firm advised CNOOC on its $3.47 billion acquisition of U.S. oil and gas leases from Chesapeake Energy Corporation. That same year, it represented Petrochina on a lease deal with Costa Rican state-owned oil refining company Refinadora Costarricense de Pétroleo S.A. (RECOPE). With many of the biggest outbound China deals in the energy sector, it obviously helps that Vinson & Elkins is an old hand in the oil industry, with several partners who are bona fide petroleum engineers.
But Vinson's toughest competition in China has not been other Texas firms with oil-patch expertise, such as Baker Botts or Fulbright & Jaworski. British firm Herbert Smith Freehills is perhaps its biggest rival for China work, and other London and New York firms with better-known brands, more diverse practices, and bigger geographical footprints are also in the running. Davis Polk & Wardwell is advising CNOOC on its $15 billion bid to acquire Canada's Nexen Inc., a deal that, at press time, was still awaiting Canadian government approval, but would, if successful, displace the Addax deal as the largest cross-border deal ever involving a Chinese company. Skadden, Arps, Slate, Meagher & Flom; Baker & McKenzie; and London's Magic Circle firms are also active in Chinese energy deals. Many of those firms have been aggressively expanding in the region, and now big regional mergers like King & Wood Mallesons, where former V&E partner Handel Lee is now a senior partner, promise to alter the competitive landscape.
Can Vinson & Elkins remain a leader in this changing China legal market? Or will the firm need to contemplate some changes of its own?
V&E assembled its China practice with a mixture of homegrown partners and client-approved lateral hires. The mainstay partners are Cuclis and Xiao Yong in Hong Kong, Paul Deemer in Beijing, and David Blumental in Shanghai. Cuclis and Deemer are Vinson lifers who started in Houston but have worked all over the world with the firm. Blumental and Yong, a onetime official with China's Ministry of Commerce, joined the firm in a group defection from Skadden's Beijing office in 1997.
That move was largely orchestrated by Handel Lee, who was also at Skadden at the time. "At Skadden in China, we were doing a lot of work for Enron and Coastal Corp., all traditional V&E clients," he recalls. "[The companies] didn't use Skadden except for out here. Both the general counsel at Coastal and the head of legal at Enron approached me and said, 'We're very happy with your work, but we'd be much happier if you were at V&E.' "
Lee had met Deemer on some deals and was introduced by him to corporate chair Joseph Dilg, who would go on to serve as Vinson's managing partner from 2002 to 2011. Things clicked, and the five-lawyer Skadden energy team moved over. "We pretty much just changed the sign out front," says Lee.