Milan had been chasing a reunion with the player all summer long.
Adriano Galliani said that there were too many risks involved in the deal.
“We were waiting on the opinion of a well-known Spanish economics expert, and that’s now arrived,” he told the Milan Channel.
“The operation is closed because there are too many risks.”
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Since Guus Hiddink arrived at the helm, Chelsea have improved considerably after a tricky start to the campaign.
Newcastle United are staring down the barrel of relegation to the Championship for the second time in the past eight years.