French conglomerate Lagardere (LAGA.PA) is to sell over 100 magazine titles to the publisher of Cosmopolitan for 651 million euros ($887 million), part of a turnaround strategy for the aerospace-to-media group.

Monday's deal with U.S.-based Hearst came as Lagardere shares fell 3 percent on news of a formal investigation into an insider trading scandal at EADS (EAD.PA), and as CEO Arnaud Lagardere sought to reassure investors the row would not deflect him from his recovery plan.

The sale covers 102 titles in 15 countries, including Car and Driver and Woman's Day in the U.S., and is part of Lagardere's attempt to shed weak businesses and seek growth elsewhere. Exclusive talks began a month ago with privately-owned Hearst.

Lagardere will keep control of its women's title Elle, while licensing it to Hearst for use in certain countries. Hearst's top titles include Esquire, Cosmopolitan, and Harper's Bazaar.

By quitting the United States, Lagardere will refocus on France and shed activities that brought in about 40 percent of its media revenue in 2010, but less than 5 percent of operating profit. Lagardere expects the sale to close by the third quarter of 2011.

Together with the sale of weak assets and minority stakes, Lagardere recovery plan involves investing in its new sports marketing division and focusing on its core media businesses.

To that end, Lagardere is also planning an initial public offering in the first half of this year of its minority stake in French pay-TV channel Canal Plus, which is controlled by Vivendi (VIV.PA).

INSIDER SCANDAL HITS SHARES

But just as Lagardere makes progress on its turnaround, an old affair has flared up again. A French judge announced on Friday the opening of a formal investigation into whether the company had committed insider trading by selling part of its stake in European aerospace giant EADS in 2006.

Its shares were down 2.9 percent at 32.53 euros at 1212 GMT having earlier fallen by more than 3 percent.

"No one expected this to come up again, and it introduces new uncertainty for investors," said analyst Bruno Hareng of French brokerage house Oddo. "If there is a fine at the end of the inquiry, no one knows how big it could be -- 100 million, 300 million, 700 million?"

Hareng said investors also fear the inquiry could lead Lagardere to reduce a planned special dividend or share buyback after divesting its magazine and pay-TV units.

CEO Arnaud Lagardere sought to calm markets by saying the insider trading investigation would have no impact on the group's strategy on everything from dividends to acquisitions, and would not lead to a provision on the balance sheet.

"There is nothing behind this case so why would we change anything?" he said on a conference call.

He expressed frustration about the French justice system and repeated that the company had been cleared by a probe into the affair by French markets regulator, the AMF.

"The judge has doubts but he has no proof so his duty is to go further and do a deeper analysis," he said. "We will be cleared ... Enough is enough. This is getting ridiculous."

Lagardere's EADS stake is the heritage of founder Jean-Luc Lagardere, Arnaud's father, who spent decades stitching together holdings in autos, aviation, and defense and then married them with media holdings.

Arnaud Lagardere is now unwinding his father's ambitions and will focus solely on media. He has already sold half of the EADS stake and says he aims to sell the remaining 7.5 percent in 2012 or 2013.

TOO SMALL IN U.S.

Arnaud Lagardere decided late last year that its international magazine business was too small to compete effectively with larger U.S. rivals Conde Nast and Hearst.

Since acquisitions to reach critical mass were out of the question, he looked for a sale or a partnership.

According to the deal terms, Lagardere will keep control of the Elle brand in 15 countries via a licensing agreement with Hearst that covers magazines, Internet, mobile and all digital and audiovisual supports.

It will receive royalty payments from Hearst, which it estimated at 8 million euros per year contribution to Lagardere Active's operating result.