Shaking the Bancroft family tree

(Fortune Magazine) -- The one-stoplight town of Carrizozo, N.M., is a dusty, tumbleweed-strewn place where you can ask the sheriff to pass the hot sauce at the 4 Winds diner. It may seem an unlikely venue to look for insights into the battle for Dow Jones, but tucked away in the squat courthouse are 12 thick folders that shed light on the family dynamics that may decide the fate of Rupert Murdoch's bid for the company.

Jacqueline Spencer Morgan, who married Hugh Bancroft Jr. in 1948, spread millions of dollars around this county seat and the rugged land of Lincoln County, her home for roughly 50 years. The pool at the community center, the golf course and the Spencer Theater, which rises from a rolling meadow, were all paid for in part with a steady flow of Dow Jones dividends. (Hugh Bancroft Jr. was a grandson of Clarence W. Barron, who purchased Dow Jones in 1902.)

Jackie Morgan

Chris Bancroft

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Court documents detail how Jacqueline Spencer Morgan received dividend payments that amounted to about $4 million a year for her trusts, which held close to $50 million in Dow Jones (Charts) stock.

Payments like hers have supported the entire Bancroft family for decades but, critics say, have starved Dow Jones of capital to grow its business. (Members of the family control 64.2 percent of Dow Jones, primarily through class B shares, each of which has ten times the voting power of a class A share.)

Dividends, which in some years exceeded the company's profits (see chart), lulled the clan's senior members into supporting Dow Jones management. Last year, according to a Lehman Brothers report, the company paid out $83.2 million in dividends while earning (not including special items) $81.6 million in profits.

To gain control of Dow Jones and its prize publication The Wall Street Journal, Murdoch will have to win over (or scare) the dynasty that controls it. "No thanks" was the initial response of a majority of the 30-plus Bancrofts to the News Corp. (Charts, Fortune 500) chairman's offer of $60 a share.

If sweet-talking the Bancrofts fails, Murdoch may very well impress upon Dow Jones's independent directors that the dividends should be lowered or cut off, and the freed-up cash reinvested in operations. This threat, if it were made, would force the family to choose between Murdoch's $60 a share payday or a future in which those payments would be reduced. And as the Carrizozo court files show, Bancrofts can get fractious when their mother's milk is threatened.

At the time of Jacqueline's death in 2003 a family feud was already brewing, prompted by her third (and final) marriage in 2000 at age 75. Her groom was Ronnie Lee Morgan, an interior decorator 25 years her junior. Her death triggered a nearly three-year legal battle over her estate that pitted her three children, including Christopher Bancroft, a Texas investor and Dow Jones board member, against her third husband. The children claimed that the marriage was never consummated and accused Morgan of being a gold digger intent on getting his paws on Mom's Dow Jones wealth. (Indeed, a lawyer who helped Morgan move assets prior to his wife's death was convicted of money laundering and fraud.)

And according to a court transcript of a 2002 interview with a Texas psychiatrist, Jacqueline said she didn't speak to her son, claiming that he was interested only in "how much money he's going to get if I die." The case was eventually settled, and Ronnie Lee received a lump-sum payment that reportedly was $12 million. Jacqueline's stock remains in the kids' trusts, and Christopher is against selling to Murdoch.

The estate documents also show how the $4 million annual dividend payments to the late Mrs. Morgan supported a rich lifestyle. She died owning several properties in New Mexico and Mexico, about $1 million in jewelry, and works of art - some of which, including a Picasso, were auctioned off by Ronnie Lee last year in Texas.

Today in Carrizozo, a few of the late heiress's gowns even hang in locals' closets. When the Carrizozo Women's Club held its rummage sales, Jacqueline often donated items. "The night before, the members would go in to price everything, and they would be getting fur coats for five dollars," related Ruth Hammond, co-publisher of the Lincoln County News. And though she pumped nearly $37 million into the Spencer Theater, Jacqueline paid for her own tickets.

While everyone in town knew she had money, she was discreet about its source. "She never talked about that," said Antoine Predock, the noted architect who designed the Spencer Theater. Such gracious acts are of a bygone era. For the current Bancrofts, the days of living large on Dow Jones dividends may soon become a thing of the past too.