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Palacios could cost the Gunners £15-20 million, according to Fox Sports Argentina.
Real Madrid were previously leading the chase for Palacios to the extent that they had reportedly agreed a £20 million deal.
Palacios's agent told Radio Continental that his client would be 'leaving in June' and that clubs from 'Germany and England are asking for him'.
7 new rule changes are coming to the Premier League – but are they good or bad?
One's Kompany: just where have all the player-managers gone?
