Holtby was to move to Tottenham when his contract with the German side expired in the summer.
However with Sandro injured, the English side were keen to tie up the move earlier and have now agreed a fee with Schalke to sign him now.
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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.