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Milan had set their sights on bringing the former Juventus player to the San Siro but the Rossoneri failed to reach a financial agreement with Real, forcing the Serie A side to admit defeat.

"Negotiations for Emerson have broken down," said a statement from the club's official website.

"It has not been possible for the two clubs to reach a financial agreement."

Emerson followed coach Fabio Capello to Madrid following Juventus' relegation to Serie B for their part in the match fixing scandal which rocked Italy last summer.

But the Brazilian failed to live up to expectations at the Bernabeu last season and has been told to find a new club.

The 31-year-old is thought to be keen on a move back to Italy, where he made his name during a spell with Roma between 2000 and 2004.