Arsenal's hopes of luring Sami Khedira away from the Santiago Bernabeu have been lifted after it emerged Real Madrid have approached Luiz Gustavo to become the German's replacement, Spanish reports suggest.
Khedira has been closely linked with a move to the Emirates this summer after rejecting his club's offer of a new contract with his current deal in the Spanish capital set to expire next summer.
The 27-year-old had reportedly lowered his wage demands to help force through a deal to the Gunners, who are reluctant to meet his £150,000-a week demands which would have made him the club's highest earner above Alexis Sanchez and Mesut Ozil.
And it would appear the Champions League holders have accepted his decision to leave the club and will look to bring in Brazil international Gustavo to provide some steel in their midfield.
Spanish daily El Confidencial reports the Spanish giants have already contacted the powerful midfielder and his club Wolfsburg and are ready to make him their fourth signing of the summer should Khedira leave.
The Germany international still has the opportunity to renew his deal at the Bernabeu with manager Carlo Ancelotti desperate to have him in his squad next term. But should Khedira continue to refuse, his club are ready to sanction his exit to recoup some of their summer spending and proceed with a move for Gustavo.
Arsene Wenger is believed to be in the hunt for a formidable holding midfielder having already addressed concerns at right back and in goal during this transfer window.
When quizzed on the club's pursuit of Khedira however, the Gunners boss denied a bid has already been made, but remained coy on the possibility of bringing the German to north London.
He told a press conference: "No. No [offer has been made]. I don't know [if he is available]. If I read the newspapers he is available."
Khedira, who enjoyed an excellent summer campaign as he helped his country secure the World Cup in Brazil, will return to training with his club on 5 August where his future is expected to be resolved.