Villarreal coach Unai Emery rejected Newcastle United this week over a break clause in the contract proposed.
The Mirror says such was Newcastle's confidence in their pursuit, that they believed Emery would be in place by the time they face Brighton this weekend.
But they have been left stunned after the 49-year-old decided to stay at Villarreal.
Emery was unhappy with a clause in the deal offered to him that would have enabled Newcastle to sack him if they were relegated this season.
The Magpies are currently second bottom of the Premier League and are winless in ten games this season.
Rafael Benitez was afforded the opportunity to take Newcastle straight back up in 2016, after they were last relegated from the Premier League.
Emery is also said to have been concerned by the 'chaotic' nature of the Toon's managerial hunt.
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