The report states that the deal will cost City €26 million but the fee can rise to €29 million due to bonuses.
Bild go onto say that Manchester City’s new manager Pep Guardiola is keen on the transfer despite Gundogan’s knee injury which will keep him out of first team football for up to five months.
However, the Gunners have instead signed Borussia Mönchengladbach’s star midfielder Granit Xhaka.
Gundogan will miss Euro 2016 after dislocating his knee during training earlier this month. The midfield playmaker has seven assists and three goals in 40 appearances for Dortmund this season.