The Red Devils have been keeping close tabs on the Argentine centre-back during the last few seasons and were expected to again show an interest in Garay this summer.
Many would have expected Manchester United to step up their interest by submitting a bid for the 27-year-old following the departures of Nemanja Vidic and Rio Ferdinand, however Bayern Munich have moved to the front of the queue to sign Garay.
And the Bundesliga giants have added more insult to injury by negotiating a deal which will see Garay move to the Allianz Arena for under £10million.
Benfica have been forced into cashing in on the former Real Madrid ace this summer as the defender has just one year remaining on his current contract at the Portuguese outfit.
Manchester United boss Louis van Gaal will now have to switch his attention to another defensive target to replace the aforementioned Vidic and Ferdinand - with reports suggesting the Dutchman could now turn his attention to either Feyenoord's Bruno Martins Indi or Barcelona's Alex Song.