Arsenal and Manchester United will turn their attention to attempting to sign Philippe Mexes after defensive target Pepe opened talks to sign a new deal with Real Madrid.
The Portuguese defender was due to be out of contract next summer, but has quashed talk of a move to England after starting negotiations over an extention.
Director general Jorge Valdano said: “The negotiations with Pepe are going well,” he said. ”He is an excellent person and one of the best central defenders in the world.
“It is true that we have been talking for some time, but I am confident that he will choose to stay on at Real Madrid.”
The Premiership giants will now turn their attention away from the 28-year-old and focus on trying to tempt the unsettled Philippe Mexes away from Roma.
The French international has been heavily linked with a move to The Emirates Stadium and to Liverpool, but the race to win his signature is apparently being won by AC Milan, with vice-president Adriano Gallani telling Gazzetta dell Sport: "If Mexes does not renew his contract with Roma, we are interested in the player."
While Milan are looking for a replacement for the departing Alessandro Nesta, the Barclays Premier League duo's need is far more pressing.
The Gunners have seen defensive blunders undermine their challenge for trophies domestically and in Europe, while United's injury crisis this season may force Sir Alex Ferguson into strengthening his back-four yet again, especially if Rio Ferdinand fails to fully recover from a long term back injury.
Arsene Wenger has been linked with a host of defenders, namely Gary Cahill, while Ferguson has been impressed with Aston Villa's Ciaran Clark, who along with teammate Ashley Young, is tipped to make a move to Old Trafford.