The 27-year-old has struggled to make an impact since his £72 million move from Lille in 2019.
Pepe has not featured in any of Arsenal’s three Premier League fixtures so far this season and the Ivory Coast international is now set to leave the club.
According to Nice Matin, Arsenal and Nice have now reached an agreement which will see the winger join the French club on loan for the remainder of the campaign.
Nice do not have an option to buy Pepe, while Arsenal are subsidising part of the midfielder’s £140,000 a week salary.
Leicester City also made a late push to sign Pepe, which gave him the option to remain in the Premier League, but Nice Matin report that his preference was to return to Ligue 1.
When asked about Pepe’s situation earlier this month, Arteta said: ‘What we can communicate we always do when it’s the right moment.
‘We discussed that we have a big squad and we’ve made some decisions and allowed some players to leave.
‘Until the end of the window it’s possible that anything can happen with any player.’
Pepe has made 112 appearances during his time at Arsenal, scoring 27 goals.
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