Arsenal are set to miss out on midfield target Luiz Gustavo after the player agreed to join Wolfsburg, reports ESPN.
The Brazilian was deemed to be surplus to requirements by Pep Guardiola at Bayern Munich after the signings of Mario Gotze and Thiago Alcantara.
It was reported that Arsene Wenger had tabled a £17m bid for Gustavo in an attempt to add some steel to the Gunners' midfield.
That bid was thought to match Bayern's evaluation for the player. Along with Gustavo saying a move to Arsenal would be of interest, an agreement looked imminent.
But it now seems Wenger moved to slow as German newspaper Die Welt has claimed that Wolfsburg have won the race for the 26-year-old's signature.
The news represents a significant blow for Arsenal who are yet to spend any money in this summer's transfer window.
This summer was supposed to represent an end to the austerity measures imposed by the club since they moved to the Emirates stadium, but so far they have failed to land any major targets.
Gonzalo Higuain was lost to Napoli whilst thier pursuit of Luis Suarez has stalled thanks to Liverpool's reluctance to sell.
Yayo Sanogo, the 20-year-old Frenchman, remains Wenger's only signing of the summer.