Valero Energy Corp. (VLO) took a long-awaited plunge into Europe's refining market Tuesday by agreeing to acquire a stake in a Dutch plant for about $725 million.

In its first foray outside of North America, Valero, the largest independent refiner in the U.S., would buy the 45% stake from Dow Chemical Co. (DOW), which is divesting assets to pay down debt. However, it is unclear whether France's Total SA (TOT), operator and majority owner of Total Raffinaderij Nederland NV, will exercise its right of first refusal over those shares. A representative from Total declined to comment.

San Antonio-based Valero has been looking to buy refining assets abroad - especially in Europe - as a way to enhance its operational flexibility and to diversify as the U.S. government moves to strengthen regulations pertaining to emissions of global warming gases. The transaction is expected to close in the third quarter.

While Europe's refining sector, like that of the U.S., faces the challenges of waning fuel demand due to the economic downturn, some assets there are desirable because of the region's focus on distillates, a category used to describe some fuels such as diesel and jet fuel. Many refining analysts see distillates as the engine of global growth in fuel, while demand for gasoline, which is used in the U.S. more than anywhere else, will remain flat or decline.

"Valero is clearly positioning its system to meet long-term global demand for distillates," said Chi Chow, an analyst with Tristone Capital Co. in Denver, in a note to clients.

In addition, fuel trade across the Atlantic Ocean is robust, and with operations on the ground, Valero will have a better vantage point from which it can predict and capitalize on changing market conditions.

Mark Gilman, an analyst with the Benchmark Company, suggested this acquisition could be a precursor to buying out the remaining shares of the refinery from Total.

Valero hasn't been able to find any meaningful way to expand in the U.S.

"In large measure, it's a default-type of philosophy," Gilman said.

Valero's purchase comes as refining asset values have tumbled from highs seen in 2006 and 2007 together with refined-product prices and demand.

Valero Chief Executive Bill Klesse hinted at the deal during a conference call with analysts in April following the release of first-quarter earnings.

"The markets have shifted dramatically," Klesse said during the call. "Acquisitions with the proper hardware in the right location [are] attractive."

The Netherlands refinery has a processing capacity of 190,000 barrels a day and the ability to process a variety of feedstocks into diesel and jet fuel. Total will continue to operate the refinery with input from Valero's management.

For Dow Chemical, the sale is another step in its quest to reduce the $9.23 billion in short-term debt it incurred to buy rival Rohm & Haas Co. earlier this year. The company has already sold Rohm & Haas' profitable Morton salt unit for $1.68 billion, and issued debt and equity for that purpose.

-By Susan Daker, Dow Jones Newswires; 713-547-9208; susan.daker@dowjones.com

(Kerry E. Grace in New York, Ana Campoy in Dallas and Adam Mitchell in Paris contributed to this report.)